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MODERNIZING REFORMS

- To say goodbye to both corruption and populism

I devoted two columns to the prime minister’s farewell press conference. When he was finance minister, he recruited me to help him design the reforms in the early 1990s; once the crisis was over, I was put on the shelf and eased out, perhaps because I was not populist enough. Since then he has taken the help of people of his choice and implemented his preferred populist policies for an entire decade; few rulers are so lucky. If he still leaves with regret and frustration, it cannot be because he could not be populist enough. He thinks that unsympathetic media belittled his populist achievement. But they did not invent the imperfections of PDS, MGNREGA and his other policies; they only reported them. The policies themselves were imperfect. I suggested in my last column how they could have been improved.

Essentially, mobile telephone technology can be developed to create electronic cash which can be possessed and transferred just like currency notes, but cannot be stolen, damaged or destroyed like them. The government should ensure that the entire adult population has such capable mobiles, and uses them to transfer subsidies to them. Manmohan Singh’s successor can be as populist as he likes without engendering the massive corruption that he did. My electronic currency would not eliminate all corruption: that is unachievable because politicians enjoy corruption, they compete to maximize it, and our democracy is well suited for their games.

Suppose, however, that some future party wants to say goodbye to corruption as well as populism; what economic policies should it follow? I have only a few more words left, and cannot give the answer at great length. I shall outline a few ideas, including some on which I have written earlier in this column.

First, India should complete trade liberalization, and abolish all import restrictions — in particular, the remaining customs duties, and the negative list. It should introduce unilateral free trade. It should build highways from the Northeast to West Bengal across Bangladesh, and bridges across the Palk Strait to Sri Lanka, and ensure completely free movement along these new routes. When the time comes, it should also build highways across Pakistan to Afghanistan, Iran and central Asia.

Second, India should become more maritime. It should construct a couple of dozen artificial ports that would take ships of draft up to 20 meters. The government should for a while subsidize ships that would provide regular passenger and cargo services, between these ports as well as to ports in Indian Ocean countries. Our land transport routes — rail and road — are overburdened, and we do not have the space to build new ones; buying the requisite land in cities would cost more than our GDP. So let us take to the sea, which our ancestors once dominated.

Third, India should abolish the monopoly of states in electricity. The ideal is to ensure that anyone can sell electricity to anyone else. The transportation and distribution networks would have to be common, and are best owned by the government. But they should have simple, cost-based power transportation charges. If we are to have competition in electricity, many other things will have to be abolished — subsidy for rural electricity, Coal India’s monopoly, and government controls on oil product prices inter alia.

Fourth, the present states should be replaced by a hundred-odd states, each centred on a city of half a million people or more. Some adjustment may be required in regions with few large cities; some states may have to be created with smaller capitals. The boundary between states should be as close to equidistant between state capitals as possible.

Fifth, state languages should be abolished. Every one of the hundred-odd new states will have a dominant language; but the people should be given the right to use any of the hundreds of languages spoken in India, and deprived of the pleasure of imposing their language on anyone. The language of government as well as private business should be Indian English.

Sixth, all government schools should be privatized; instead, all qualifying schools should be subsidized. There should be a central examination that children may take after six years of schooling; children should be free to take it at any time, even if they do not go to school. It should cover only English, mathematics, and any one other Indian language; the language should be optional. The marks of all children from a school taking the central examination should be averaged. Every school should get three subsidies: one based on the number of students, another on the number completing six years and taking the examination, and a third on the average marks in the central examination. The subsidy based on examination performance should be sufficient to enable good schools to offer a further six years of schooling. Secondary schools should concentrate on teaching children to learn on their own and think for themselves.

Seventh, the present first-past-the-post system of election should be replaced by a hybrid system: 10 per cent of the seats should be subject to the present system, and 90 per cent should be filled on the basis of proportional representation. Prime ministers and chief ministers should be replaced by presidents; they should be free to choose members of their cabinets from elected as well as unelected people. Presidents should have worked in a government or a big company for at least 20 years. There should be separate elections for presidents and for legislators. Legislatures should be much smaller; ideally they should have about 50 people. Those who fail to attend legislative sessions should lose their seats.

Eighth, the present division of taxes between the Centre, states and local authorities should be abolished. Taxes should be determined and levied by the Centre; the revenue should be distributed between various levels of government by a periodic finance commission. Of the criteria that finance commissions currently employ, state revenue would cease to exist once states’ power to tax is abolished; it should be replaced by outcomes of state expenditure. The other criteria should be population and poverty.

Ninth, whilst taxation must be progressive, the government must not give income subsidies as such to the poor: there are too many of them, and their identification creates uncontrollable opportunities for patronage and corruption. The government’s primary function should be to spend on infrastructure and on public goods. If it spends on people, it should be on the basis of their inability to support themselves — for instance, orphans and old people, sick and disabled people. They should be given not just subsidies but the opportunity to live happy lives in communities.

Tenth, taxes should be high both on vehicles and on transport fuels, principally petrol and diesel. Taxes on passenger vehicles should be based on the ratio of the number of seats to road space occupied, and should be lower on faster vehicles since they occupy less road space-time for a certain distance travelled.

Finally, governments at all levels should run lotteries, races and other betting games, revenue from which should be used to finance innovation and risk taking. It should also fund a vigilance organization that would continuously study the efficacy of governments.