Editorial 1/ False cause
Editorial 2/ Trial by water
Wishing for a drought
The other burning issue
Document/ Development funds lost in transit
Fifth Column/ What ails those perfect bodies
Letters to the Editor

 
 
EDITORIAL 1/ FALSE CAUSE 
 
 
 
 
Nothing emboldens terrorists more than the absence of a coherent policy to fight them. The Kamtapur Liberation Organization’s deadly strike inside an office of the Communist Party of India (Marxist) at Dhupguri shows that the outfit has ruthlessly exploited this lacuna. It was the most daring assault by the KLO, which had killed several other local leaders of the CPI(M) and the Revolutionary Socialist Party over the past two years. Obviously, it has not been deterred either by warnings by the chief minister, Mr Buddhadeb Bhattacharjee, or by sporadic police action against its supporters. Mr Bhattacharjee’s resolve to deal firmly with the KLO has often conflicted with his senior party colleagues’ advocacy of a political approach.These leaders are anxious that giving the police a free hand in suppressing the revolt may do more harm than good. Such an apprehension is patently wrong-headed because it is based on flawed premises. In the first place, the KLO’s armed movement — for a “sovereign” state to be carved out of some areas in north Bengal and Assam, which allegedly belonged to “historical” Kamtapur — has very little popular appeal and even less logic. Largescale migrations of people from the former East Pakistan and then Bangla-desh have changed the demographic patterns in north Bengal. To try to unmake that history and recover the old Kamtapur state for its so-called original settlers is not just hot air but also a fraud on the people in whose name the insurgency has been launched. This is not comparable to the Gorkhaland agitation of the mid-Eighties in the Nepali-majority Darjeeling hills, where a popular demand for autonomy existed for decades.

The absurdity of the KLO’s call does not, however, detract from its capacity for depredations. Mr Bhattacharjee and his party colleagues should know that the Kamtapur agitation today is different from what it used to be even a decade ago. The marauders of Dhupguri are very different from the earlier Kamtapur activists who would fight panchayat, municipal and state assembly elections. The KLO is a modern-day insurgent outfit, that tries to win with guns what it lacks in mass support. In so doing, it has forged links with other insurgent groups operating in the region such as the United Liberation Front of Asom and the National Democratic Front of Bodoland. There is thus little scope for dealing with the KLO politically.

Mr Bhattacharjee has, however, a genuine problem with the topography of the KLO’s area of operations. Like the ULFA and the NDFB, it is known to have bases in the jungles of southern Bhutan which border both Assam and West Bengal. He is therefore right in asking for New Delhi’s help to persuade Thimphu to bust these bases. In fact, the Centre and the two state governments need to act jointly to fight the militants. But Mr Bhattacharjee needs to spell out a strategy to stamp out the KLO. One test of this clarity of approach could be to bring in the Prevention of Organized Crime Act, which he had earlier planned to introduce to fight terrorist activity in the state. It is time the party mandarins, who had checkmated his move on this, realized that tougher laws were needed to tackle disruptive forces like the KLO or the Peoples’ War group of the Communist Party of India (Marxist-Leninist).

   

 
 
EDITORIAL 2/ TRIAL BY WATER 
 
 
 
 
European artists have often imagined deluges as the end of the world. The current floods in eastern and central Europe are not quite on that scale, but the damages are becoming extensive. More than a hundred people have been reported dead; more than 80,000 people have been evacuated in Germany itself; opera-houses, churches, palaces, museums and libraries are in peril. Rivers like the Danube, the Elbe and the Mulde have risen to levels unprecedented in the last hundred years or so. Cities like Dresden, Dessau, Salzburg and Budapest have either been flooded or are tensely keeping vigil on their rivers.

Europe is perhaps confronting a natural disaster like this with its own, entirely understandable, kind of unpreparedness. Rescue and evacuation, the fortifying of dykes and dams, the marshalling of huge numbers of sandbags and the salvaging of priceless treasures have to be coordinated. There is another kind of menace in industrially developed countries like Germany. Volunteers’ frantic efforts have managed to stop the waters from getting to the chemical plants in the Bitterfeld area, thereby preventing an environmental disaster from the release of toxins. Environmentalists are feeling a vindicated lot in Europe, with many regarding the floods as a form of climate change, a clear effect of global warming. With the Johannesburg earth summit a little more than a week away, Europe’s impatience with the United States of America’s rejection of moves to restrain global warming is likely to intensify. The German chancellor’s primary concern now would be meeting the flood bills, which in Germany alone could be more than nine billion pounds. He has invited the leaders of Hungary, the Czech Republic, Slovakia and Austria to Berlin, together with the European commission leader, Mr Romano Prodi. Mr Gerhard Schröder — who has been criticized for leaving Russia (just as badly flooded) out of this summit — has publicly refused to be worried about stretching Germany’s budget past the deficit limits allowed under the single currency rules. He and his opponents will both have to be careful not to appear to be making political capital out of this disaster with the federal elections in Germany barely a month away.

   

 
 
WISHING FOR A DROUGHT 
 
 
BY BIBEK DEBROY
 
 
The news about drought and its impact on the economy is all over the place. It is almost as if disaster has struck and is going to nip incipient recovery in the bud. The background of course is real gross domestic product growth of 4 per cent in 2000-01, the worst since 1991-92. In 2001-02, GDP growth improved to 5.4 per cent and there were signs that the worst of the downturn was over. Leading indicators were better, six core infrastructure industries performed better, the index of industrial production improved and so did export performance. Although there were variations across sectors and across companies, in general, first quarter results for the corporate sector were not dismal. In terms of investments, there was even some activity in the capital market through fresh issues.

Most economists and research institutes talked about GDP growth of between 5.5 per cent and 6 per cent in 2002-03, though the Reserve Bank of India stuck to a band of between 6 and 6.5 per cent. Without factoring in the effect of drought, the finance minister spoke of 5.5 per cent — with services growing at 7 to 8 per cent, manufacturing at 5 per cent (now growing at 3.5 per cent) and agriculture at 3 per cent (with a trend rate of 2.5 per cent).

The drought has set a cat among the pigeons. Twenty (the exact figure depends on the week) of 35 meteorological divisions have had deficient rain. The Central groundwater commission, which monitors water levels in 70 major reservoirs, finds water levels are way below average. There may be urban water shortages. The power minister tells us hydro-electric power generation will drop by 30 per cent. The agriculture minister tells us kharif sowing has been affected. Even if there are better rains in August and September, there will not be enough compensation. States are falling over backwards to declare districts as drought-prone.

Technically, they were supposed to wait till July 31 or establish that 50 per cent of the crop had been destroyed. But clearly, the situation is so serious that one couldn’t afford to wait. There is talk of the national calamity relief fund, with the Centre chipping in with 75 per cent and states with 25 per cent. There is talk of postponing loan recovery from farmers. This is the worst drought since 1987. The media, especially the electronic media, has gone to town. A few economic research institutes have lowered growth estimates by a clear percentage point, down to 4.5 per cent.

Perhaps they are right. But I keep wondering, are these people (media included) breaking news or making (in the sense of manufacturing) it? Take the worst case scenario of agriculture growing at 1.5 per cent. (This is the worst on the basis of presently available information. Technically, agriculture can also have a negative rate of growth.) Instead of growing at 3 per cent, agriculture grows by 1.5 per cent. However, agriculture only accounts for 25 per cent of national income. Even if we lose 1.5 per cent in agriculture’s rate of growth, we only lose .375 per cent in its growth contribution. Take away .375 per cent from the earlier figure of 5.5 per cent and you have 5.125 per cent. How is this a disaster? Look at first quarter figures for companies that sell fast moving consumer goods. These are companies that cater to rural demand. These figures aren’t good. Sales have dropped. Last year was good for agriculture. Ipso facto, this increase in rural incomes should have shown up in good first quarter figures. It hasn’t. Why not? I can think of only two reasons. The link between rural incomes and corporate performance is weaker than we presume. In that case, it should work both ways. If the positive effect is weak, the negative effect will also be weak. We can’t have it both ways.

Alternatively, there is a longer lag that spills over beyond the first quarter. In that case, the beneficial effect of last year’s agricultural performance will improve the 2002-03 GDP figure and the drought, such as it is, will not impact that much on GDP growth. Again, one can’t have it both ways. In 2000-01, 11 states had drought-like conditions. Agriculture declined by 0.2 per cent, but industry still grew at 6.4 per cent. Yes, the GDP performance was bad at 4 per cent. But that was because of what happened to services (50 per cent of national income) and not because of what happened to agriculture and thus, to industry. Actually, a bumper crop can also lead to downward pressure on agricultural prices and thus affect farm incomes adversely.

Finally, India may still be a relatively insulated economy. But exports of goods account for 10 per cent of GDP. If we include exports of services also, the figure is larger. The global recovery is now confirmed, especially in the United States of America. Exports have registered good growth in April and June (month on month) and this suggests 10 per cent growth in exports for the entire year. This is a clear percentage point gain to GDP growth, something we did not have last year. Doesn’t this more than compensate for any reduction in agriculture’s contribution?

It seems to me that everyone is building up a drought scenario on the basis of imperfect information. We do not have an early warning system. This was thought of in 1999, but came to nothing. The agriculture ministry proposes an early warning system known as Fasal, but that is not yet ready. Indian agriculture is not as sensitive to the monsoon as it used to be. In any case, average figures are completely meaningless. The spatial and temporal distribution of rains is much more important.

In any case, the present system of sampling through patwaris is so imperfect that we don’t even have a clear idea of what the average is. That is precisely the reason why the impact of a supposed drought on crops will not be evident till November and that is also the reason why the national calamity relief fund is released in November. That apart, the rabi crop does compensate a bit for a bad kharif.

The US-based Centre for Ocean Land Atmosphere Studies has some satellite data. From what I have been able to gather, the drought has affected western Uttar Pradesh, Haryana, Punjab, Andhra Pradesh, Rajasthan, northern Madhya Pradesh and Orissa. Perhaps a little bit of Karnataka and Tamil Nadu. Delhi has declared a drought, but that is irrelevant. Notice that 94 per cent of Punjab’s land area is irrigated. The figure is 77 per cent for Haryana and 63 per cent for all of UP. In other words, these parts are somewhat insulated and there is also the scope of switching crops. Remember also that in the Nineties, Indian agriculture has become more diversified, with a switch away from foodgrains and towards cash crops and even towards things like fisheries and poultry.

Hence, as far as I can make out, the drought is serious only for Rajasthan (which has already had drought-like conditions for two years running), perhaps Orissa and perhaps parts of Madhya Pradesh. In any case, there are now signs that the soya crop in Madhya Pradesh is not as bad as one had thought it would be. So we have some problems for coarse foodgrain, edible oils and pulses. Given the state of food and foreign exchange reserves, macro managing the drought is no issue.

Whether it is politically correct or not, let us accept one fact. All states in India are not the same. Use any criterion of wealth or consumption and you will find that Andhra Pradesh, UP, West Bengal, Madhya Pradesh, Jharkhand, Orissa, Chhattisgarh, Assam, Bihar and Rajasthan do not really matter in India’s marketing map. Thus, if drought affects these states, it doesn’t affect rural demand and its link to manufactured sales much.

Why is everyone getting paranoid about the drought then? Part of what has happened is speculative. Witness increases in retail vegetable prices, although wholesale prices haven’t increased. The rest is the Sainath hypothesis. Everyone loves a good drought. With the present state of state-level finances, states want to use the bogey of a drought to extract doles and bail-outs from the Centre. How can most districts in Andhra be drought affected if Andhra wants more rice procurement to take place from the state? We know that money given for relief purposes never reaches target beneficiaries. There is leakage and extra cash is always useful when state-level elections are due.

I suspect the Centre also wants a scapegoat. One is not very sure about the prospect for reforms. Therefore, contrary to exhortations of the new president about aiming high, aim low. Build up the drought syndrome so that under-performance can later be justified. Rather strangely, ditto for the corporate sector. 2002-03 may have begun on a better note. But there is continued pressure on bottom-lines, and excess capacity and competition have not disappeared. The drought is handy in explaining to shareholders why consumer durables, FMCG products, tractors, commercial vehicles and fertilizers have not done that well.

To the extent that there is a real drought, the impact will depend on state-level administration and in some states, governance has completely collapsed. But I still think most of the news about drought is hype.

The author is director, Rajiv Gandhi Institute for Contemporary Studies, New Delhi

   

 
 
THE OTHER BURNING ISSUE 
 
 
BY TAPAS CHAKRABORTY
 
 
Politicians in Madhya Pradesh could not believe that an old social demon like sati could revisit their state and kick up so much bad publicity for their government and society. And that too for a government that admittedly works, unlike many others; and a society which, despite being steeped in superstition and the occult, is in no way impervious to liberal ideas.Yet many saw this coming.

When on November 9, 1999, Charan Shah, a 56-year-old woman committed suicide in the Mahoba district of the Bundelkhand region, the social welfare department of Madhya Pradesh ignored the incident, thinking it was happening only in Uttar Pradesh, a state under the Bharatiya Janata Party. The ruling Congress in Madhya Pradesh smugly concluded that sati could not be a stranger in UP given the BJP’s preachings for the revival of medieval faiths and the encouragement of traditional religious cults. Few thought at that time that Bundelkhand was common to both the states; that it is a region famous for its low level of human development, poor literacy and high mortality rate. Twelve districts of the region fall under Madhya Pradesh and eight under UP.

Not far from this is Saleha in the Panna district of Madhya Pradesh, where 65-year-old Guttu Bai walked into her husband’s pyre early this month in the presence of the police, with whom her villagers had a minor skirmish. Engulfed by the fire around her amid the chanting of the sati hymns, Guttu Bai shattered the myth that Madhya Pradesh, desperately trying to overcome the Bimaru trap, was immune to the onslaught of the sati cult.

Immediately after the incident, conflicting accounts of how it all happened kept pouring in. Ironically, after an incident of sati, the media always get mired in such a confusion. This time, there were elaborate sequences of Guttu Bai’s prolonged estrangement from her husband, description of how people pushed her into the fire to take revenge and other similar news. There were similar headlines when Roop Kanwar self-immolated. In the case of Charan Shah, locals were quoted to have said that the woman was of unsound mind. It is quite clear that villagers change tune the moment they suspect police harassment. For after sensing their own failure to stop such incidents, the police often go all out to intimidate people — sometimes reportedly asking them to change the version of the story to prove that such incidents are not sati actually — to salvage the reputation of the government in power.

The chief minister of Madhya Pradesh, Digvijay Singh, called the incident “shameful”, but refused to look at it as evidence of regression. “It is an isolated incident,” he said. But politicians, especially of the Bahujan Samaj Party and the BJP, demanded his resignation, taking moral responsibility as a Thakur, a caste blamed for the social tension in Bundelkhand.

But although the Digvijay Singh government may fail to take notice of it, the faith in sati is deepseated. Bundelkhand is dotted with temples of sati and regular worship of the deity is continuing, despite the express provisions of law to stop it, particularly those formed after the Roop Kanwar incident. A custom in Bundelkhand’s villages will elucidate this. Whenever a new bride comes to a village, she is supposed to visit a temple of sati and seek blessings after she prays for the well-being of her husband. Besides, a baby is almost always taken to a sati temple a few months after its birth. This culture has bred a mindset which sees life ending with the death of the husband. The 1974 incident of sati in Bundelkhand illustrates this. That year, Rani Rajendra Kumari had committed sati in Kargawan near Mahoba.

Bundelkhand is still steeped in the values of courage and self-sacrifice typified by women like the Rani of Jhansi. The people, though poor, believe in the sati savitri image of women. Girls grow up listening to stories of women who laid down their lives in the funeral pyre of their husbands killed in war.

Religion, social thinkers say, is independent of country and government. So if the same religious setting exists in the whole of Bundelkhand, there is no reason why incidents like sati should not happen in Madhya Pradesh. The problem is this: with sati already a part of folklore, how is it that the government of Madhya Pradesh chose to join the conspiracy of silence? Digvijay Singh has been trying to focus his attention on the social sector by introducing innovative educational experiments, but does the chief minister think that the social problems of the state that spring from superstition, faith healing and the occult, have been exorcised?

There have been far too many glaring failures. Sati might have been too extreme a case, but what about the child marriages in the state? Come May, if you happen to visit Guna and Rajgarh districts of Madhya Pradesh, you can watch toddlers dressed as brides and grooms, waiting at bus stands or trundling down the roads in trolleys or autorickshaws.The locals will tell you which politicians had attended their marriage pandals. Many of these politicians are members of the Congress. The issue became so embarrassing for the government that even the United Nations children’s fund office pressed into service a battery of its allied non-governmental organizations in 1996-97. The NGOs were forced to abandon the project, complaining that politicians were refusing to join the movement for fear of public reaction and the possibility of losing votes.

In a number of cases, rural reforms failed to take off because the Congress had to work out a compromise, and refused to allow NGOs to operate.The clash of rival tribal groups in Khargone — one led by the Adivasi Mukti Sangathan and the other by loyalists of a Congress minister — in 1997 is an example. In Devas, the police had a violent encounter with the NGOs, leading to the death of tribals. In a more recent case, the government has decided to withdraw voluntary bodies like Ekalavya, involved in the promotion of scientific education in Hosangabad. About 1,000 centres would now be shut down. The decision has kicked off a furore.

There has been some changes in the attitude of Digvijay Singh since he started his second term as chief minister in 1998. He has been accused of being much less hawkish over the social maladies of his state. He became less accessible to voluntary workers unlike his earlier tenure in 1994-98.

Ever since his relation soured with Medha Patkar and the Narmada brigade, hundreds of NGOs working at the grassroot levels have either turned against the state government or have turned sour in their partnership with the government. Many NGOs were sought to be coopted into the establishment by the Congress which offered women workers in NGOs tickets for the 1998 assembly polls. The direct party patronization sullied the image of a number of NGOs. All this has obviously weakened the government-NGO relationship in combating social evils.

The result of the government’s unsteady partnership with voluntary groups is reflected in the government’s own human development report. The report admits that female literacy is as low as 19 per cent in Bundelkhand and cases of infant mortality are alarming. Unofficial reports portray a grimmer image. They say that local bodies are still controlled by the upper castes. Besides, an appalling economic divide between Chowrasias and the extreme backward classes have been causing social tension. With literacy levels so poor, and voluntary groups not so active anymore, one can guess why blind religious faith continue to rule social institutions.

On January10, 1998 Digvijay Singh had stated, “We need to present challenges, share concern and urgency to be able to mobilize collective action required for change. Madhya Pradesh has long been stereotyped as a Bimaru state because of its backwardness in human development. To break out of this trap, in the quickest possible time, was a major challenge for our state. In the last five years we have made some efforts to accelerate this.”

This was on the occasion of releasing the human development report of his state in Delhi in the presence of Ama-rtya Sen. Four years down the line, the chief minister’s fresh achievements are being challenged not only by the opposition but also in his own party. The sati has merely given his rivals another occasion to launch a campaign against him.

The Congress government in Madhya Pradesh can feel proud for initiating a number of important changes, particularly in primary education. Take for example the education guarantee programmes in which the mukhia of a village would choose a teacher to impart education to candidates of his area. Other projects like right to information and government at your doorstep have, by many accounts, been encouraging steps as Digvijay Singh believes “in looking at people as solution”.

However, as Amartya Sen would insist, in a democracy, the society is where an ordinary man exercises his initiative. In Madhya Pradesh, there have been many such initiatives in the development sector. Will the chief minister now encourage his population to wage a sustained battle against social evils like sati and child marriage ?

   

 
 
DOCUMENT/ DEVELOPMENT FUNDS LOST IN TRANSIT 
 
 
 
 
The backward classes welfare department was responsible for the planning, implementation and monitoring of community development schemes through the different district-level executing agencies, namely, project officer cum district welfare officer, zilla parishads, panchayat samitis and so on, while funds for the purpose were released from the deposit account of the West Bengal Scheduled Castes and Scheduled Tribes Development and Finance Corporation.

The WBSCSTDFC was responsible for planning, implementation, monitoring and evaluation of family oriented income-generating schemes. On receipt of Central assistance under the special component plan and tribal sub-plan from the state government, the managing director, WBSCSTDFC, fixed both physical and financial targets for the district as per population ratio of SC and ST communities. In turn, district offices of WBSCSTDFC allocated targets and funds for each block/panchayat samitis of the district. The gram panchayats were to sponsor the applications of the selected SC and ST beneficiaries (as per village survey report/integrated rural development programme muster register) through panchayat samitis for sanction of bank loans. The banks were required to conduct pre-sanction appraisals through interviews, joint inspections and forward the valid applications for approval to the district offices of WBSCSTDFC for release of subsidy and margin money...

The WBSCSTDFC was to provide government subsidy and margin money after sanctioning institutional finance (bank loan) for various income-generating schemes under various sectors namely, agriculture and minor irrigation, fisheries, animal husbandry, cottage and small scale industries, transport, trade and business, and so on, to SC and ST families living below the poverty line aiming...to provide a sustained income but also to enable them to cross the poverty line and to achieve the capacity to repay the loan. However, eligibility of selected beneficiaries could not be verified in the absence of a list of beneficiaries selected in the open meeting of the gram sansad, village survey reports, BPL/ IRDP muster register, joint inspection report, and so on...

There was an overall shortfall of 34 and 23 per cent in physical and financial achievements. The consolidated position of amounts disbursed to beneficiaries against sanction was not available. Further, while reporting their achievement to the government, the WBSCSTDFC indicated the amount sanctioned as disbursed instead of actual disbursements and this depicted an incorrect and unreliable picture of achievement and utilization of funds...

Scrutiny of records revealed that against the target of 1,54,7263 projects during 1996-2000 involving subsidy and margin money of Rs 77.15 crore, the participating banks disbursed subsidy of only Rs 33.57 crore and margin money of Rs 2.62 crore (47 per cent) for 71,665 projects/beneficiaries (46 per cent).

Scrutiny revealed that out of a total of 96,880 loan applications sent to the concerned banks by WBSCSTDFC in five districts for sanctioning of loans under SCP and TSP, 84,280 applications were approved while 12,600 applications remained with banks at the end of 1999-2000. These applications were neither accepted nor the same were returned to the respective panchayat samitis for further vetting and re-submission.

During 1996-2000, Rs 2.98 crore (subsidy — Rs 2.18 crore and margin money — Rs 0.80 crore) was refunded to WBSCSTDFC by the implementing banks of the five test-checked districts. These amounts are lying undisbursed with them since 1995-96. No records indicating the number of cases involved in these amounts were made available to the auditor by WBSCSTDFC.

As per government guidelines, 20 per cent of the project cost was to be borne as margin money by the executing agencies from their own resources. However, WBSCSTDFC decided (September 1996) to restrict payment of margin money for the schemes with project cost of Rs 4,000 or less. As a result, shortfall of margin money loan of Rs 13.04 crore in five districts was met through bank loans for which the beneficiaries (number could not be ascertained) had to bear an extra interest burden of Rs 1.04 crore per annum due to higher rate of bank interest (12 per cent) compared to interest on margin money loan (4 per cent).

Project cost was to be disbursed within 90 days of sanction by all banks. Scrutiny of records revealed that there were inordinate delays ranging from 6 months to 60 months in disbursing project costs in 41,409 cases involving Rs 33 crore. In four districts, project costs in 20,250 cases valued at Rs 17.40 crore sanctioned between 1996-2000 were not disbursed by the concerned banks till March 2001. Bardhaman and Medinipur being the districts where higher number of non-disbursed projects were noticed. Reasons for such delays in disbursement of project costs as observed in the audit were due to controllable factors, namely, late selection and sponsoring of cases; casual selection; disregarding essential linkages vital for the scheme; delay in holding of joint inspection and holding back of fresh disbursement by the banks to panchayats when loan recoveries were not prompt and regular.

to be concluded

   

 
 
FIFTH COLUMN/ WHAT AILS THOSE PERFECT BODIES 
 
 
BY SUMON KUMAR BHAUMIK
 
 
The dust is yet to settle on the Enron and WorldCom financial scandals, and already there are rumours about other major companies whose rosy balance-sheets and earnings statements may not be the true reflection of their health. The crisis brings into question the role of auditors, and the need for a separation between the audit and advisory activities of audit firms, and also raises doubts about the direction in which equity indices will move in the foreseeable future.

But, even as the firefighting continues on many fronts, the series of events can be distilled into one core problem — that of corporate governance. Economists have long held that the Western mode of operations — with separation between the owners and managers of companies — is preferable. The owner-shareholders provide the capital, and the managers provide the managerial know-how. The activities of the latter are monitored and controlled by the former through boards of directors and implicit threats to sell out to rival groups who will take over the company and replace the incumbent management if it underperforms. This arrangement is supposed to ensure the best utilization of capital and protect the interests of shareholders.

Problem models

It is evident that boards of directors are not as efficient as expected as far as protecting shareholder interests is concerned. Debates in the United States of America and the United Kingdom, the bastions of the Western corporate model, are increasingly focussing on the role of independent directors who, until recently, were considered to be the panacea for corporate misgovernance. Questions are now being raised about the extent to which such directors are “independent”, and whether they can bring any benefit in the day-to-day running of a company. But the economic theory of corporate governance falls apart over questions like the ability of shareholders to discipline errant managements.

While the ultimate providers of capital continue to be dispersed, capital itself is increasingly being managed by large organizations like pension funds and mutual funds. This is welcome because, as larger entities, they can discipline corporate managements better than dispersed shareholders.

What has then gone awry? While economists have considered separately the ability of large financial institutions to discipline corporate management and the problems of agencies within an organization, few have highlighted the possible impact of problems within the company and perverse incentive structures on the ability of corporate managements to safeguard the interests of the shareholders.

Hidden relations

Economists have hardly ever discussed the effect of bonuses and the large variable component of the incomes of brokers and analysts on the fiscal prudence of companies. In other words, the genesis of the events that are shaking the foundations of the model of Western corporate governance today lies in a system that evolved during the Eighties and Nineties.

The unprecedented bull market of the Nineties may have played a significant role in affecting incentives in a way that helped precipitate the events of the last few months. But since the last time such market conditions was witnessed was in the Twenties — before the times of the economists, managers and regulators of today — it is impossible to say whether we would have witnessed an Enron in the absence of the bull run or to what extent the bull market has contributed to today’s corporate misgovernance.

Where does that leave us? Economists would doubtless ponder over the adjustments they need to make to their models of corporate governance within the Western paradigm, and redefine contractual arrangements both within and among corporate and financial organizations, keeping in mind the interests of shareholders. Perhaps they should also go a little further. It is time they looked at other paradigms like the almost-forgotten German system of two-tier boards and attempted to determine how best to address the problem of corporate governance in the modern era.

   

 
 
LETTERS TO THE EDITOR 
 
 
 
 

When no news is bad news

Sir — What could be a greater mockery of an autonomous institution than what goes by the name of Prasar Bharati? And what could prove this more clearly than Doordarshan’s shameless attempt at blacking out Madhu Sharma’s charges against Pramod Mahajan (“Doordarshan cottons on much too late”, Aug 17)? The Doordarshan authorities were probably trying to curry favours with the Bharatiya Janata Party. But not only did they lose all credibility, but they also managed to create trouble for the BJP. The last thing the BJP wanted were charges that it remote-controls the operations of Doordarshan. Besides a perverse desire to suck up to the party in power, the series of events also revealed the incompetence of Doordarshan when it comes to breaking news. The details of how Doordarshan finally got a byte of Mahajan reads like a failed thriller, in which everyone misses all the deadlines. Trust the national channel to make news for not being able to get the news.
Yours faithfully,
Smita Aggarwal, Bhopal

Man on a mission

Sir — The chief election commissioner of India, J.M. Lyngdoh, deserves praise for coming down heavily on the Gujarat administration for inadequacies in rehabilitation work and helping the riot-affected people of the state (“No BJP let-up on Lyngdoh”, Aug 13). He has taken a dispassionate stance after a first-hand assessment of the ground situation, ruling out immediate elections and proposing a review of the situation in October before poll dates are fixed. Lyngdoh’s position is refreshingly different from the sycophantic one that government officials invariably take in such matters.

Under the circumstances, it is only natural that the Bharatiya Janata Party will act edgy. But there is little reason to believe, as the BJP spokesperson insisted, that Lyngdoh is acting at the behest of the Congress. Such politically-coloured remarks are an affront to democracy and are tantamount to interfering in the workings of the Election Commission. How could Arun Jaitley, a lawyer himself, make such a comment about an official — a member of an independent democratic body — whose words bear the same import as those coming from a Supreme Court judge? The BJP should recall the Supreme Court verdicts on the holding of elections in Haryana in 1983 and Assam in 1994. It had ruled that “no state government can dictate when elections [in a state] are to be held”.

Before declaring the poll dates, the EC has every right to question the feasibility of holding elections in Gujarat, given that thousands were rendered homeless during the carnage, or have lost their documents or have fled the state altogether and hence may be effectively disenfranchised. Surely, it is within the rights of the EC to ensure that the maximum number of people can vote in an election. If, in the process, it upsets the BJP’s gameplan of capitalizing on the communal divide in the state, all the better.

Yours faithfully,
Sankar Lal Singh, Calcutta

Sir — The CEC has proved that he is nobody’s fool by refusing to be misled by state government officials in Gujarat and going along the itinerary prepared for him. Since the whole point of the pogrom in Gujarat was to create a communal divide for electoral purposes, it would be invidious to reward the perpetrators by giving in to their demand for elections. The country needs more upright men like J.M. Lyngdoh to counter the politics of opportunism. The sangh parivar is predictably planning to approach the Supreme Court to circumvent the EC, but the apex court will certainly not cater to its demands. The Gujarat pogrom might just turn into the proverbial albatross round the BJP’s neck.

Yours faithfully,
Biswapriya Purkayastha, Shillong

Sir — What would J.M. Lyngdoh gain by acting according to the wishes of the opposition, as the BJP alleges? By expressing his displeasure against official negligence and cover-up exercises in Gujarat, Lyngdoh has only taken a principled stand and tried to put a finger on the pulse of a state going to polls, as any sincere election commissioner would do. Being used to lackeys in their political life, the BJP leaders are naturally having difficulties in handling Lyngdoh. L.K. Advani, for one, is finding it difficult to contain his anger at Lyngdoh’s announcement to review the situation in Gujarat. Attributing political motives to Lyngdoh’s actions is merely a feeble attempt at hiding such anger.

Yours faithfully,
Kynpham Sing Nongkynrih, Shillong

Sir — Subordinates are not berated in public, as J.M. Lyngdoh would have us believe. This is contrary to the tenets of leadership and man-management. One does not play to the gallery. It is a sign of insecurity. It may still not be too late in the day for Lyngdoh to acquire some leadership qualities before he embarks on conducting elections. He should be aware of the risks of misusing power and remain calm no matter what the provocation.

Yours faithfully,
S.K. Raychaudhuri, Calcutta

Sir — Arun Jaitley’s arguments — that the Election Commission’s job is to conduct elections and that the EC should be guided by what the state and Union governments say — are not convincing enough. That elections are the last thing on the minds of the riot victims in Gujarat has been wilfully ignored by Jaitley’s party. With Atal Bihari Vajpayee slowly distancing himself from party affairs and L.K. Advani gaining pre-eminence, it is doubtful whether the grievances of the victims, whether in Gujarat or in Kashmir, will ever be heard.

Yours faithfully,
B.S. Ganesh, Bangalore

Sir — It is good that we still seem to find some officers taking on the might of the politicians. Isn’t this the way a revolution starts? Sensible people will soon start seeing J.M. Lyngdoh’s point, and the more people join in, the better for society.

Yours faithfully,
Asheem Kapoor, Calcutta

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