Economic Impact of UP Election

Introduction

    The scale of UP victory (>3/4th seat share) higher than any statistical analysis based on 2014 LS results: higher than both Surjit Bhalla's (@surjitbhalla) 60% seats and 5forty3's 2/3rd prediction. Political opposition/delaying tactics to Govt's economic policies likely to cease, both in RS and among party & affiliated organizations.  The Union Govt. will Re-Focus on economic objectives outlined in 2014 election manifesto and by the PM & his Govt. in the 2016-17 and earlier budgets. The mandate will allow the Union Govt. to accelerate Policy & institutional reform.

Policy Reforms

The Union government is likely to accelerate policy and institutional reforms that have already been announced by government, whether in the cabinet or in the budget. These include the following:

Welfare-subsidy reform

LPG reforms has made great progress. Govt has suggested at different times that other areas like kerosene, food, fertilizer, employment-NREGA would also be reformed  to eliminate corruption & admin inefficiency to reach benefits directly to poor, farmers & other needy groups.  So far these areas have been pursued very hesitantly and sporadically. Reforms are likely to be expedited so that the funds saved can be used to invest in infrastructure which promotes employment creating growth.

Strategic sales

  Strategic sales & public sector reform (PSUs, AI, ports, railway) reform to stop waste of resources into the sink hole, so funds can be used for infrastructure development. Strategic sale are opposed by vested interests (political, bureaucratic, management, labor) who enjoy the rents from Public sector while the public/tax payer pays the cost. The sweeping victory in UP will make it much easier to deal with obstructions and agitations from such vested interests, and thus accelerate the pace of change.

Labor Reform

  Labor law reforms were reiterated in the 2016-17 budget, in particular the reduction and integration of 44 odd labor laws into four functional ones. UP could also liberalize labor laws to encourage manufacturing, like Rajasthan & other BJP ruled States have started doing. 

Public Sector Bank (PSB)NPAs

        PSB bad loan problem, through decisions on sharing of losses by lender, borrower and tax payer/govt. NPAs whether at the country level or at the international level (e.g. Greece) is less about mechanisms, than about cost sharing than about appropriate sharing of costs between borrower, lender & tax payer.  Any decision will be criticized by opposition parties. However, with the Its hand strengthens by the electoral verdict, the govt is in a stronger position to deal with any criticism. The key here is too take & implement decisions quickly, rather than to search endlessly for a perfect solution (which does not exist) 

Goods & Services Tax (GST)

  The Union Govt. has an opportunity to remove some of the complications introduced at the urging of States, partly because govt did not have a majority in the Rajya Sabha.

Land Reform

   The Government can remove remaining constraints on land acquisition for infrastructure (e.g. through land pooling mechanism). It should also introduce the model land leasing law devised by NITI Ayog.

Foreign Direct Investment(FDI)

   The government has slowly and systematically eliminated unnecessary FDI restrictions and welcomed FDI. Given its announced intention to eliminate FIPB, there is now another opportunity to eliminate all FDI restrictions along with FIPB to encourage shift of manufacturing from newly-highly risky China to India.

Agriculture Productivity

    Allow the introduction of indigenously designed, tested and produced GM seeds followed by other GM seeds already evaluated, tested & cleared by the Indian regulatory agencies, which is so essential for enhancing agricultural productivity and incomes. Expedite removal of perishable goods from the APMC acts & the introduction  of e-markets.

UP administration

     There is also an opportunity to transform UP and consequently the Hindi heartland, by re-establishing rule of law, reducing corruption and accelerating economic growth.  One measure that would greatly facilitate transformation of the development paradigm, is the division of UP into 3 (or 4) separate administrative units, a halfway house to 3 (or 4) separate States. Each major sub-division (West UP, Central UP & East UP) would be under the charge of a deputy CM.  Bundelkhand admin could however be directly under the supervision of the CM. The CM would also act as a coordinator, planner, facilitator & supervisor of all major initiatives. He would also be the node between the union Govt/PMO and the DCM of the 3 quasi States.

Conclusion

      One of the results of the UP election results is likely to be a lengthening the time horizon of the policy options and institutional reforms considered by PM Modi led government from five to ten years. This implies less pressure to produce immediate results (populism) and greater likelihood of reforms that take time to work through the economy to produce visible results in growth and employment . However, the focus will remain on the reforms mentioned in the BJPs National election manifesto and the programs announced so far, with fine tuning based on the 21/2 years of running the union government.  The PMs words and actions over the past 2-3 years also suggests that he is likely to focus much more on establishing his place in history and to discourage some of his hyperactive followers from taking the law into their own hands or engage in violence and thus derail this long term objective.

Non-Govt Organisations (NGOs)

Q & A with Lola Nayar, Outlook Magazine

Q1: Your views on the IB report on foreign funding of NGOs and the charge that the issues raised by them and protests staged by them is responsible for 2-3 percent lower GDP growth?

A1: The IB report has highlighted the issue of foreign funding (under FCNRA) of organizations whose primary purpose is to agitate against development projects. This issue needs to be debated. Like CAG's estimates of 3G losses the estimate (in the covering letter)is quite arbitrary and unsupported by sound analysis.

Q2: How responsible and justifiable is this view?

A2: The IB's job is to provide intelligence to the government. It is for the public to debate issues of importance  to public welfare.

   In my view the decision of the UPA Govt (a few years ago)to insert a rule banning foreign funding under FCNRA for NGOs whose primary objective is to protest against government decisions on economic development (such as nuclear power, GMO crops) is justified.  However care must be taken by home ministry to ensure that transparent(audited) foreign funding (under FCNRA) of research organizations and social welfare organizations helping disadvantaged individuals, groups and the poor are not impeded.

Q3 In a democracy, can dissent or opposition to a policy or project be only seen in terms of corporate interest or should the human cost as in case of displaced people in land acquisition and environment costs also be factored in?

A3: There are a number of issues rolled into your question. My response to these diverse issues is as follows: 

a) In Indian democracy Indian citizens have and will continue to have the (fundamental) right to lawfully oppose projects and policy that they disagree with.

b) Rail roko, Chakka Dham, Dharnas and burning of public property are not mere "opposition" to a policy or project. Illegal activities should not be allowed in the name of opposition.

c) Organizations are not people. Organizations are set up under rules designed for their creation and must follow these rules to be allowed to function. 

d)India has 'land acquisition' and 'environmental protection' laws which factor in human costs. It is an insult to the majority of voters who choose one balance between the rights of many to development vs a minority that wants only the rights of the small group of people affected by a particular project. 

e) If these laws are not properly implemented due to corruption and/or bad governance, the proper course is to agitate against corruption and bad governance, which a plurality of citizens/voters agree on.

Q4: In your view, do NGOs play any fruitful role in the development goals of a country? Have the NGOs accused of being anti-development, served foreign interests in the issues raise by them?

A4: As in Government and Private Sector there are good and bad eggs in the Non-Government, Non-profit sector. The proportion of good vs bad varies across sectors. The ideological assumption that non-profit sectors are "good" and profit sectors are "bad" is a hangover of our Fabian socialist heritage. 

  Private sector can be kept honest through market competition and government and regulators enforcement of laws and rules. However, Corruption is now pervasive in government from the lowest level up. Many politicians have set up both profit and non-profit organization to disguise corruption. Therefore any assumption that all NGOs are knights in shining armour is self-delusion. Rich Foreigners have their own interests in mind when they fund Indian NGOs. To demand transparency in the receipt and usage of these funds from large, media savy Indian NGOs is perfectly justified! To harass all NGOs is not.

Other Questions

Q: Do you oppose Foreign funding of NGOs?

A: Certainly not! I strongly support foreign funding of NGOs/NPOs engaged in research (economic, social, technical) and of NGOs that do social work for the welfare-betterment of the poor, the socially dis-advantaged and the physically or mentally handicapped.