Indian Economy

[prasen9]

When the economy is good, the RBI buys dollars and artificially keeps the Indian Rupee at a higher rate than what it should be to keep Indian exports cheap. Now, when the Rupee is losing value, why does not the RBI divest itself of these huge reserves (though not that unusual wrt Japan, China, and the rest of the Asian currency dwiddlers) to stabilize the rupee? Do they want to take advantage of the cheaper rupee to make the exports even more competitive? PKB? anyone else?

[Peter]

From the BBC, Six reasons why India's rupee is in freefall.

USD is 56 INR this morning.

One way to interpret this is that everyone needs to make a lot more money if this trend continues.

[jaydeep]

Thanks Peter for sharing this BBC article by Alam Srinivas.

[gbelday]

Breakout Nations: In Pursuit of the Next Economic Miracles
http://www.amazon.com/Breakout-Nations- ... 093&sr=8-1

This is a pretty good book by Ruchir Sharma, who is the Head of Emerging Markets at Morgan Stanley. He gives a country-by-country account explaining the forces that will give rise to the next economic success stories as well as the next flops. He is quite negative on India, an opinion that I am beginning to share. We need some real leadership at the top and it's been solely missing for the past few years.

Here is a quote from one of the reviewers (something that we all probably already know)...

Sharma defines breakout nations as those that that can sustain rapid growth, beating or at least matching high expectations and the average growth rates of their income class; for the richer emerging markets with average incomes of $20,000 to $25,000 (such as the Czech Republic or South Korea) breaking out will mean three to four percent growth in GDP, while for India, in the class of $5,000 and less, anything less than six to seven percent will feel like a recession.

[jayakris]

I have had the opinion for the last 5 years or so (at least) that the Indian success story of growth rate etc are now nothing but a chimera that came and went. We will not achieve the things we thought we could achieve with the opening up of the economy back in the early 90s. We caught up a little bit with the rest of the world for about 15 years since 1991, but have been falling way behind the kind of growth trajectory we should be on - in infrastructure, manufacturing base and general social development. That will not change till we tackle the real gorilla in the room - an utterly useless system of democracy with no real governance and accountability.

The word "accountability" is what is missing in India in every sphere. Till that changes there will not be the kind of leadership in public and even private sector that spurs true growth and economic development. We have a system and constitution that calls for seemingly the least amount of accountability among all countries in the world, as far as I can see. That must change first.

The spurt that could be expected from doing away with 40 years of controlled socialist economy, has come and gone over a 15 years period. Now we are back to basics again, and the true cause of our problems. Who will bell the cat and call for a true reform of our system? [No, I am not talking about the BS that corruption is the problem, from the Anna band and seemingly most Indians who are still living in the idealist world of great people leading them with pure hearts and intentions, a notion from the 1940s!]

Jay

[prasen9]

Jay, would you prefer a directly elected premier type of democracy? [I'm too lazy to put hyphens anymore.]

[Atithee]

Jay, thanks for not holding the constitution responsible.

Seriously, it is just a document that can be amended any time.

It's too bad that the dynasties are becoming a norm rather than the other way around. I have accepted the fact that systemized corruption is better than corruption without a system because the ideal world of no corruption does not exist any where in the world. I just hope that even the corrupt people deliver something that's so obvious for everyone to see. However, if we can't even get our hockey team back to just be competitive with the big boys, how can we expect our administrators to pull us out of the muck we are in?

I don't know why the common person accepts the status-quo and the "chalta hai" scenario. After all accountability can be enforced by voting if the required person/team/government is not delivering? But we keep electing the same set of officials either to be in power or opposition and just swap them around. Argh!

[jayakris]

Jay, would you prefer a directly elected premier type of democracy?

I don't think the premier being directly elected will solve anything, unless a system of proper power to the premier through a systematized executive branch is established. That can be done even within a parliamanetary system. [Just that the ridiculous current scenario of a person, however decent and reasonably capable he is, being our PM for a decade without ever having stood for an election, happens to be a perfect example of what all goes funny in India].

There should be national and state machinery (not just police) that is properly controlled by the elected politicians, who are tested by the voters on how they use the machinery for productive results. Not there in India. Right now, it is just not easy to show results through better governance in most states, even if the politicians wanted to. The exceptions are some states with a little more of an "obedience/respect" culture, but in most states the politicians cannot get much done even if they try. They figure out quickly that the opposition also has not done any better and that voter's expectations are really low. So they spend their time making money the easy way, knowing that there is a fairly high chance that the ruling party will anyway lose the next election whatever they do in the state. The politicians have no real power. All they can do is to transfer the collectors and engineers and others like that. They cannot appoint them, and they cannot fire them easily. They cannot promote them out of order easily, which means there is no financial incentive for the executive machinery to do anything for the politicians.

Though not easy, we need to find a way to incentivise the performance of those who actually run the governance machinery within the political process. A proper understanding of the selfish interest and political nature of all human beings need to be part of our constitutional framework for this, and idealistic thinking will not work. The fact is that the country has been running without any huge catastrophes mainly only because we have Civil Service people who are generally quality individuals who would at least do the minimum needed to keep things going. That is one group of people who are selected fully based on their quality. But that is not enough. They too have no incentive to work with the eleced people and find solutions and better plans - so all they do is to try not to upset the politicians. That is not going to get anything done.

Once incentivising performance starts at various levels, and there is a price to pay for not performing, we will see true changes. Remember that the politicians are never fools. If they did have the power to do it, they would also pick the better ones, automatically bringing in a certain level of competition in performing within the governance machinery. There is nothing like that now, and so the politicians go with those who would be more useful in raising party funds, and those who help orchestrate personal corruption for the politician. When there is no competition in corruption, there will be corruption with nothing productive resulting from it. These are all problems coming directly from the idealsitic views of our founding fathers, which were never questioned later.

So to answer your question.... What I am asking for is to strengthen the power of elected people over the career bureaucrats in the executive arms of the government. I think it can be done even within the parliamentry system.

That takes me to the comment that Atithee made -

I don't know why the common person accepts the status-quo and the "chalta hai" scenario. After all accountability can be enforced by voting if the required person/team/government is not delivering? But we keep electing the same set of officials either to be in power or opposition and just swap them around. Argh!

Well, you are stretching the truth (like Indians have been doing for decades) when you say that accountability can be enforced by "voting". No. It is not automatic. If those who get voted are constitutionally shackled from having much power over the executive machinery, no accountabilty can come to the voters. The voter will see after flipping between one party or its opposition (or in come cases 3 or more party-groups) that nothing ever works anyway. Expectations reduce. The voter then starts focusing on just a few things on which the governments have some power and can show results, and basically the system continues with no accountability. In many cases, some useless national talking point like "Ram janmabhumi", "Bofors" or BS like "Garibi hatao" or a "coal mining scandal" will be all the voters could go by.

The voters do not even start to think of why there is such severe water shortage everywhere in India, which is not such a low-rainfall country, and has people who hardly need even 1/3rd of the water used in most developed countries per capita. Or why we do not keep up lane or edge marking on roads after spending 100 times as much to lay them. They never think why Indian football team hardly has 2 decent stadiums to schedule international friendlies. Or why we run trains with toilet sh** dropping on the rail tracks. They are all assumed to be things nobody can change...

What this shows is that when there is a system that gives no power to politicians to enforce governance through the government machinery, the voters' expectations go down very fast. Nothing ever changes, they feel. They stop holding anybody accountable. That happened in India by around the 1960s and 70s, and it has never improved. The side effect is that only the low class worms with no self-respect who are willing to just be sycophants and are happy with making money through under-the-table activities without doing anything productive, would ever go into politics. Voters have no choice because only incapable worms become politicians in India, and the cycle keeps going... It all starts and ends with the system we put in place 60+ years back.

Jay

[Atithee]

Well, you are stretching the truth (like Indians have been doing for decades) when you say that accountability can be enforced by "voting". No. It is not automatic. If those who get voted are constitutionally shackled from having much power over the executive machinery, no accountabilty can come to the voters.

Jay, I am not getting what you are trying to say. Can you please clarify who is the "executive machinery" and how are they "constitutionally shackling" and rendering the voted officials "powerless?"

What this shows is that when there is a system that gives no power to politicians to enforce governance through the government machinery, the voters' expectations go down very fast.........It all starts and ends with the system we put in place 60+ years back.

Which "system" gives no power to politicians to enforce governance through the government machinery and how is it limiting the governance? I thought the "system" is the "government machinery."

I'd also benefit from examples of other countries or the better states in India as to how the system, constitution, etc. are aiding accountability? And how the system alone can do this and the voting people can't really do much except to lower their expectations and accept the status-quo? I believe US has the system you are talking about. So, if you use that as reference, it would help as well. We are both residents of California -- a state that is facing huge deficit issues due to pension/healthcare obligations that were promised to retirees who are double-dipping with impunity. Assuming you agree that this is a problem, how is the system able to fix it?

[prasen9]

Can you please clarify who is the "executive machinery" and how are they "constitutionally shackling" and rendering the voted officials "powerless?"

Haven't you heard? The robots have taken over. Finally.

[Prashant]

I for one welcome our new robotic overlords. A little shackling is good for everyone now & then.

[prasen9]

For those of you who did not know, Prashant is a closet-sadist. Coming out.

[jayakris]

Atithee, to answer your questions, I tried to google to see if there were others who wrote similar items better than me. Surpringly, not too much came up. But I did find a good document - the background paper to the highly-publicized blue-ribbon 2000 Constitutional Review Commission by the commission member in charge of this topic, the well-respected Dr. Abid Hussain - Some ideas on governance. (This committeee was a dead duck of course and nothing much happened, as always!)

For one, Dr. Hussain asks for much more of local control and involvement and asks for the financial disbursal mechanisms for that.

5. Human Resource Management and Involvement of Community: When one talks about resources it does not only mean financial resources, it implies human resources as well. You cannot ask a district councillor to take charge of primary or secondary education at the district level without giving the elected district council control over administrators and teachers who run the school system. If a primary school teacher looks to a distant education director or the education minister or state level elected representative from the area for his promotion or any other improvement in his conditions of service, he is not going to be accountable and responsive to the needs of the local community.

But more interestingly, the whole long section 7 on civil services lays out pretty much the same scenario I was talking about above (though perhaps more critically of the IAS people than me. I am more critical of the system that makes them operate in their own elite fashion and turn into people who play along with the politicians who can't really get them to do much by way of initiative or taking responsibility for better governance and development). Worth reading, though I do not completely agree with his recommended changes, which may not yield the accountability that he is also asking for. But his background paper touches on most the ills we have, that I could ever think of, and much much more. All the way through section 14, he lays out a lot of problems.

Now, as for other systems you asked for, here is an example. Of S.Korea, a country that has shown impressive development over the last few decades (at one time because it was really a police state, but for at least 2 decades as a pretty good democracy with all its extremely productive corruption). From wikipedia on Korean government, the main and only item on its executive "machinery" was about their civil service (which BTW has existed, with national exams etc that too, for some 10 centuries or something in Korea!)

The civil service, not including political appointees and elected officials, is composed of career civil servants and contract civil servants. Contract servants are typically paid higher wages and hired for specific jobs. Career civil servants make up the bulk of the civil service, and are arranged in a nine-tiered system in which grade 1 is occupied by assistant ministers and grade 9 by the newest and lowest-level employees. Promotions are decided by a combination of seniority, training, and performance review. Civil servants' base salary makes up less than half of their annual pay; the remainder is supplied in a complex system of bonuses. Contract civil servants are paid on the basis of the competitive rates of pay in the private sector.

Does it look like they had a clue or two on what would work? These things are important. People are selfish. Make a constitution (or make enough serious changes) that recognizes it and forces them to be productive for the soceity at large while they pursue their selfish interest.

It is not really a US concept or anything, though they produed an extreme system of directly elected executive with serious power. That works if you can put in place serious checks and balances with a vibrant and independent legislature (may not work in India easily). I am not advocating copying anything from the US, but to really rethink our constitutional system. Accountability should be the number one item. Do whatever it takes to make people take responsibility for what they do, and make the politicians be able to get things done, so that the people would elect them and allow them to pursue their selfish interests.

Jay

[Atithee]

I am sorry, I still do not get it but that is ok. Thanks for your efforts to explain Jay.

[arjun2761]

My own take that the bulk of the electorate does not expect good governance. They are won over handouts, quotas etc. In other words, the politicians have figured out that handouts, quotas, etc. is how they get elected rather than good governance.

It is the middle class which probably cares about better governance and they are still a voting minority. Once the middle class grows larger, hopefully this will change the dynamics of who the politicians have to respond to.