Editorial 1
Editorial 2
Trickle down factor
Letters to the editor


Halfway flight

The recent decision of the government to sell off 74 per cent of Modern Foods and 51 per cent of Indian Airlines has certainly opened a new chapter in the history of privatization in the country. Ever since the P.V. Narasimha Rao government took the first hesitant steps towards reforms, the disinvestment of government holdings in public sector enterprises with the eventual goal of privatization has always been a top priority of successive governments. The government has, over the years, proved to be an extremely incompetent producer. Now that the winds of change have brought in more competition, public sector enterprises will find it even harder to survive. All governments also felt quite naturally that the proceeds from the disnvestment exercise would be a much needed boost to the government�s scarce resources. In fact, Union governments have also attributed fairly large sums of money as proceeds from the disinvestment exercise.

Unfortunately, the entire exercise so far has been a miserable flop. Much of this delay has been due to stringent political opposition, with opposition parties levying various charges, the most mild being the one of �selling off the family silver�. The depressed state of the Indian stock market also forced the government to postpone the disinvestment exercise since it would have been impossible to get decent prices under the depressed circumstances. There has also been a lot of debate about the appropriate procedures for disinvestment. Perhaps the most important of these was raised by Mr. G.V. Ramakrishna, the former chairman of the disinvestment commission, who argued that the restructuring of the public sector enterprises must precede any attempt to sell off a part of the government�s shareholding in these enterprises. The rationale for this was that these enterprises would not find any takers unless they were first nursed back to health. Of course, the problem with this argument is that many public sector enterprises may never be able to wipe off the red ink from their balance sheets.

Since the share market is much healthier and the economy is showing signs of mounting a strong recovery, the government has rightly felt that this was an opportune moment to start off the privatization drive afresh. But many will still feel that the government has shot itself in the foot by placing unnecessary restrictions. For instance, there is no reason why any government should continue to own 26 per cent of a company making bread or 49 per cent of a domestic airline. Does it believe that it will have to act as a watchdog in order to protect the country�s interests? Even more surprising is the decision of the government to debar foreign airlines from owning equity in Indian Airlines. It is obvious that the best price for the airline�s equity would have been paid by some foreign airline which could have come in as a strategic partner. Entities which have no expertise in running airlines may simply be too scared to invest in a big way. This leaves the domestic airlines. However, both Sahara and Jet Airways have announced that they have no plans of buying equity in Indian Airlines. It is also not desirable that one of these existing airlines forms an alliance with Indian Airlines because this would reduce the competition amongst the domestic airlines, and Indian consumers have only recently started deriving the benefits of competition. It is not too late for the government to reverse its decision to bar foreign airlines from investing in Indian Airlines.    


Unjust measure

Although gentler in tone, the president of India�s address to the judiciary on the occasion of the golden jubilee celebrations of the Supreme Court was no kinder in intent than his earlier addresses intended for the executive and the legislature. Certainly, Mr K.R. Narayanan expressed his appreciation for the progressive role that the Supreme Court has played. But from one point of view, this was no more than mere form. The president did not hesitate to say that the law court is no longer a cathedral but a casino �where much depends on the throw of dice�. True, he was quoting, but the point is that he felt the need to bring this up. Among his oblique references, which provided the context for this quotation, was one to the lack of conviction in the murder case of Priyadarshini Mattoo. What was strange about this was that the president should have mentioned it in connection with possible improvements in judicial procedure. It was the absence of clinching evidence that compelled the judge to let the defendant go. In this case, the judge was being scrupulously just, and the investigating agencies and the police had failed or neglected to put up a foolproof case. Here at least it was not the court but the investigating authorities which had given the rich or important the advantage.

There is no doubt that the judicial system in the country needs a number of reforms. The huge pile of waiting cases is a disgrace. Certain steps are being taken to lighten the load; may be reforms should be speeded up. At the same time, one point that the president has made, that justice is not affordable for the ordinary citizen, is rather futile. The unaffordability of the law has to do with the entire framework on which the various arms of the administration, including law and order and the dispensation of justice, run. The court, or the judiciary, can do little about it. Presumably, the president was not speaking of corruption. In this address at least, the president wisely avoided opening that particular can of worms.    

There is no doubt that the implementation of economic reforms in the Nineties would have been much faster but for staunch political opposition. During the Narasimha Rao government, almost all the Opposition parties opposed the reform process. Even the Congress party itself was far from united about the desirability of the reform process. That the Congress government almost caved in to these hostile forces is evident from the fact that the reform process lost all momentum after the first couple of years.

The political opposition to reforms has been less vociferous after the United Front assumed office because it did not want to take the retrograde step of reversing the reform process, while the Congress could hardly criticize the policies formulated by its own government.

Nevertheless, the perception of the proverbial man on the street about the desirability of economic reforms has always been negative. The more extreme view is that that the move to a more market-friendly environment has been very hazardous, while a majority feel that the reform process has simply failed to deliver the goods. And virtually everyone feels that the poorer sections have been the victims of the reform process. �Poverty must have gone up� is a very common refrain.

Despite the widespread interest in the evolution of living standards of the poor in India during the Nineties, it has not been possible to make any definitive statements on this issue almost entirely because of the absence of any data. There is no reliable data on the distribution of incomes in India. That is why researchers have had to rely on the data on household consumption of different commodities collected by the National Sample Survey Organisation.

The NSSO conducts very large household surveys every five years, and considerably smaller surveys at more frequent intervals. The latter are referred to as the �thin� samples. Doubts have often been expressed about the reliability of poverty estimates based on the thin samples because of the relatively smaller number of households which are surveyed.

However, there is no reason to believe that estimates of poverty for India as a whole are biased or statistically unreliable since the all-India samples are still quite large. Of course, estimates at the level of states using thin samples are of somewhat more dubious quality because of the small size of the sample.

Unfortunately, even the NSS data are not available very quickly. Until quite recently, the only available estimates of poverty covered the period up to 1993-94. About a month ago, Gaurav Datt has published poverty estimates up to 1997 in the Economic and Political Weekly. For purposes of comparison, Datt takes the pre-reform period to be the two years, July 1989-June 1991, and the post-reform period to be the period July 1995-December 1997.

As far as the rural sector is concerned, Datt�s estimates reveal that there has been virtually no change in the pre- and post-reform poverty measures. For instance, the percentage of people below the poverty line moved from 35.4 in the pre-reform period to 36. 5 in the latter period. The more or less static picture vis-�-vis the poverty measure is also mirrored in the rural mean consumption, which has also remained virtually unchanged during this period.

The situation in the urban sector reveals a completely different picture. The percentage of people below the poverty line has declined by about 12 per cent between the two periods, moving from 33 to 29. There has been a corresponding increase in the urban mean consumption figure which has increased by roughly 10 per cent.

What do these figures tell us about the impact of reforms on poverty levels? Not surprisingly, the interpretation of these figures will tend to depend to a large extent on one�s prior beliefs. Those opposed to economic reforms will point out that the majority of the population live in the rural sector, and hence what matters are the figures for the rural sector.

They will also emphasise the fact that there was a marked decline in both rural and urban poverty in the period between 1973-74 and 1986-87, and that there has been no comparable change in the late Eighties and Nineties. The growth process has bypassed the poor, there has been no trickle down, they will claim.

Proponents of reforms (and regular readers of this column surely know that my sympathies lie with them) will advance a completely different interpretation. They will point out that the stagnation in the level of rural poverty during the Nineties cannot be taken as an indictment of the process of reforms. This is because there has been virtually no policy change in so far as the agricultural sector is concerned during this period. All the major changes in policy have been directed at the urban sector or more appropriately at the industrial sector. Indeed, they may well point out that the argument of the anti-reformers can be turned on its head.

Since reforms have mainly affected the urban sector, it is the level of urban poverty which is a true reflection of the distributional impact of reforms, they will claim. Since Datt�s estimates reveal a decline in urban poverty, the benefits of reforms have trickled down, they will assert.

The more conservative view will probably be that these figures are anything but conclusive. This is certainly Datt�s own opinion since he points out that �the failure of the rural poverty measures to decline can hardly be interpreted as implying that the benefits of post-reform economic growth have been limited to the relatively rich, and the poor have been by-passed by that process�. Datt points out that there has been no significant accentuation of rural inequality, which must surely have taken place if the growth process was biased in favour of the affluent.

A more disaggregated analysis would have been more conclusive. Even casual empiricism suggests that the implementation of reforms has not been uniform across all the states. States such as Maharashtra, Gujarat and more recently Andhra Pradesh have been more enthusiastic about bringing about change. On the other hand, the reform process has virtually bypassed states such as Bihar. Hence, it would be interesting to study the pattern of changes in the estimates of poverty across these states.

For instance, if the poverty levels have gone down sharply in say Maharashtra and increased or remained unchanged in Bihar, then members of the pro-reform school would sleep much easier. Conversely, if the changes in the incidence of poverty have been more or less similar in these two states, then the anti-reform school would have the upper hand.

Unfortunately, statistically reliable estimates of poverty at the level of states must use only the so called �full� samples. It is a shame that the NSSO full samples are available only at five year intervals. Since the last full sample was undertaken in 1993, the next would be for 1998. Although a year has passed, the NSSO has not been able to process the data, and there is still no news as to when the NSSO will provide access to this body of data to researchers. Clearly, the reform process has bypassed the NSSO. But that is a different story. The bottom line is that until this data is available, the different schools will continue to stick to their claims about the impact of reforms on the incidence of poverty.    


Candidate in residence

Sir � Hillary Clinton intends to run for the senate from New York state. So she has shifted out of the White House to a house in the Big Apple in keeping with the United States law. This requires that a candidate for the senate should have lived in the state for at least one year. How much more sense this provision makes than the one in India which lays down that a candidate for the Rajya Sabha (India�s counterpart of the senate) needs to be a resident of the state from which he wants to be elected. This law has only led to its fraudulent subversion. Most politicians who want to enter Parliament by hook or by crook rent a house in the state from where they want to be elected to the Rajya Sabha so they can produce municipal records as proof of residence. Manmohan Singh will immediately come to mind in this regard. One wonders at such lopsided laws which have make it necessary for an eminent academic like Singh to stoop to deceit, when a minor change in law would have rendered it unnecessary.

Yours faithfully,
Parijatha P.,

Enemy around the corner

Sir � The news report, �Divide and defend ploy in Kashmir� (Jan 19) indicates that the government is making changes in the security set up in order to tackle the proxy war in Kashmir more effectively. Pervez Musharraf, the military ruler of Pakistan, is a mohajir without a constituency in the country and therefore no legitimacy or public support. In order to make his position secure in Punjabi dominated Pakistan, he is aiming at some spectacular achievement in the proxy war in Kashmir. He is hardly in a position to set things right on the domestic front. Hence the recent escalation.

The government, aiming to root out Pakistan-backed terrorism, is set to adopt a proactive approach. But it needs to remember that militants today are highly motivated and trained, willing to sacrifice their lives in carrying out carefully contemplated attacks. To be effective, the Indian government needs to improve the quality rather than the quantity of the forces deployed. Counter-insurgency personnel should have bullet-proof equipment. Specially trained forces can be used to flush out militants from their hideouts in the heights. Unattended sensors and remotely piloted vehicles must be made available to them.

As local people are bound to be associated with such operations, there must be a focus on the integration of the village defence committees in the counter-insurgency �grid�. Pakistan has taken India to be a �soft state. Only when India shows its full strength will Pakistan cease to disturb India.

Yours faithfully,
B.C. Dutta,

Sir � Mani Shankar Aiyar in �Goodwill is not enough� (Jan 18), hauls Atal Behari Vajpayee over the coals for being pro-Pakistan earlier and anti-Pakistan now. Aiyar perhaps forgot to club a few leading lights from the Nehru-Gandhi clan under the same umbrella. Jawaharlal Nehru set the pro-Pakistan ball rolling by ordering a ceasefire at a crucial stage during the 1947-48 Kashmir conflict. This allowed Pakistan to continue to occupy a portion of Kashmir and voila, the Kashmir problem was born.

Indira Gandhi faithfully kept the paternal spirit alive at Simla in 1972. This act of hers made it amply evident that no matter how much the Congress leaders gurgle with anti-Pakistan rhetoric, they invariably come to Islamabad�s aid when required. They made no effort to convert the line of control in Kashmir into a formal India-Pakistan border. Yet they have been holding all the aces after the 1971 conflict.

Yours faithfully,
Jayanta Dutta,

Sir � Instead of resorting to a �Tit for tat expulsion� (Jan 20) policy, India should seriously consider � in sound bytes, if not actually � breaking off diplomatic relations with Pakistan. This should have a salutary effect on the present lukewarm attitude of the international community to the way India has been at the receiving end of endless acts of terrorism culminating in the recent hijacking.

It is high time India realized that Pakistan, the very basis of the formation of which was the hatred of non-Muslims, will never be anything but India�s arch-enemy.

Yours faithfully,
Suvendu Mazumdar,

Off track

Sir � More and more trains are being introduced by the Indian Railways without a thought for increasing track length. This has led to speed restrictions on running trains, the lack of punctuality, disruptions of schedule and above all, accidents. The payment of damages in accidents is a major drain on the railways� resources. If only the authorities had had the foresight to invest a comparable sum in safety infrastructure, the railways would not have had to bear this recurring expenditure.

Uneconomic routes and the unnecessary creation of zones by politicians to appease their respective constituencies have sapped the railways of whatever initiative it did have. The top management does not have any freedom of action. The railways are also hampered by shifts and distortions in priorities which neither add to the capacity nor help improve productivity.

Since 1996, about 40 new trains have been introduced and 200 stops added to existing ones. Each new train costs the Indian Railways about Rs 40 crore, added to which are operating costs of Rs 220-260 per kilometre. Each two minute stop adds another Rs 10 lakh to the running cost of the train annually, in terms of the increase in fuel consumption incurred while accelerating and decelerating and the loss of time.

The Delhi-Madras Grand Trunk Express, when first introduced, had 14 stops and took 29 hours to travel the distance between the terminal stations. Today, it stops at 41 stations and takes 35 hours. Express trains which started out with anything between one and 20 stops now have as many as 100-110. This is the result of increased political interference.

The ratio of passenger to goods trains is 60:40 but the ratio of revenue earned is 28:72. On an average, Indian Railways transports four billion people every year. If passenger fares are increased marginally, there will be no need for freight to subsidize passenger traffic and the railways can post an additional annual profits of Rs 2,800.

Reportedly, the total number of accidents in 1997-98 was 398, 15 more than the figure last year. This included 35 collisions, 289 derailments, 66 level crossing accidents and six fires. Other areas of absolute mismanagement are the issuing of free passes, the stranglehold of backward castes in employment and a huge wage bill that consumes 60 per cent of the railways� earnings.

Will the new railway minister take cognisance of these issues and act on them?

Yours faithfully,
Philip Elisha,

Sir � It is not true that the railways is neglecting its duty in ensuring the safety of running lines (�Coal row over rail safety�, Dec 9). Divisional authorities have been engaged in regular consultations with the chief mining advisor, Dhanbad, and coal mining authorities. The director-general, mine safety, has also been apprised from time to time of irregular mining activities.

Further, surface inspections have been carried out by railway officials. The CMA originally had two wings � mining safety and locomotive coal inspection. With increasing dieselization and electrification and the consequent phasing out of steam locomotives, the locomotive coal inspection wing has become almost redundant.

This necessitated the reorganization of the CMA office at Dhanbad, as per the directions of the railway board. This reorganization process is still underway.

Yours faithfully,
K. Mukhopadhyaya, chief public relations officer, Eastern Railway,

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