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Broader Charities Vs Basic Duties

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 For far too long, the government has been persisting in its policy of granting a plethora of rights to citizens that it can ill afford, which some celestial being is expected to magically help the government in fulfilling.  If the state focuses on the ideal and utopian outcome of trying to accomplish all, it will overspend and cause inflation and only harm those who it is supposedly trying to help.

Selling capital assets to fund revenue expenses, ad hoc delays in subsidies/payments due, absurd claims on tax payers, rampant government borrowings, and not setting aside resources to meet pension liabilities of government employees is also impairing the long-term fiscal health. Investing in a transition team to move the government to accrual system of accounting to stop the systematic gaming of government finances would restore the credibility of the fiscal regime.

To sustainably reduce fiscal deficit, ruthless prioritisation is unavoidable.  Provision of basic standard of living, that includes clean water and sanitation, healthcare, and schooling, constitutes a basic human right and is undoubtedly an essential ingredient of economic development and the state should create enabling infrastructure and incentivise the same.

Given below are some suggestions on resource allocation.

  1. Creating a resource pool to meet all historical unmet commitments. It is essential to first deliver on all the promises made and that too in a timely manner. The historic outrage of non compensation for homes drowned by the Hirakud dam or later the Bhakara Nangal dam and the non settlement of war widows promised compensation is a reputational blot which the government must remove.
  2. Protecting personal security (especially for women) and security of personal property. The Police Act was enacted by the British to protect its regime’s interests and not the masses - hence the overarching focus on VIP security. Implement the 2006 SC directives on implementation of National Police Commission and adopt the Soli Sorabjee Committee draft of the model Police Bill. Encourage local citizen patrolling, increase women constables and  gender sensitisation training. Allow no discretion in filing FIR’s by allowing complainants to file at any government office and/or by themselves on a police website (punish perjury). All police stations must disclose status of ongoing investigations and conviction rates on a website.
  3. Providing and enforcing property titles: The countries which have shown the highest growth rates post the 1820 historic inflection of growth rate dispersion are those which have facilitated clear property titles for individuals and created and resourced a framework to efficiently help individuals protect private property. On average, GDP per capita, measured in terms of purchasing power parity, is 10X as high in nations with the strongest protection of property rights than in those with an ineffective judicial system. Through enforcement of these rights, the value of untitled land assets of the world’s poor is estimated to be 40X all the foreign aid received throughout the world since 1945. Evidently, with their already accumulated property secured, the world’s poor would be much less so.
  4. Unburden and expand Judiciary to expedite justice: Investing in increasing capacity and skills of public prosecutors and partially privatise this to the legal profession who should be entitled to a percentage of fines for achieving success. Unimplemented laws in statuette books benefit only those who violate them and those who facilitate it, creating perverse incentives in society.
  5. Drains trump free healthcare: 90 per cent   of increased life expectancy in the last century is explained by improvement in sanitation. According to a study done by Harvard and National Bureau of Economic Research, in the US, clean water alone was responsible for nearly half of the total mortality reduction in major cities, three-quarters of the infant mortality reduction, and nearly two-thirds of the child mortality reduction. In India today, 1 in every 5 urban households and 2.1 in every 3 in semi-urban or rural areas (i.e. ~131 million Indian households) do not have basic sanitation access! So there is urgent need for creation of public toilet infrastructure with some element of pay for use and incentive for good maintenance cannot be ignored. Additionally, reimburse doctors/hospitals for vaccinations and trauma care. Healthcare is important, but given our limited resources, primitive requirements like sanitation/clean water, vaccinations and trauma care need the greatest allocations from the government.
  6. In a similar vein, the government needs to do away with wasteful/inefficient subsidies in the agriculture sector. Government's conflicting policy goals: one, of keeping retail food grain prices low to protect consumers and the other, of keeping procurement prices high to incentivize farmers is self-defeating as it weighs down government budget with a perennial subsidy burden and stokes inflation. According to a study in 2011 by the central bank, 40 per cent of India's vegetables and fruit rot before they can be sold. Moreover, in a little over $70 billion, the government could complete the irrigation potential of the country (60 per cent of farmland is rain fed). However, the government is choosing to fritter over $15 billion each year on fertiliser and power subsidies instead of facilitating investment in warehouses/drip irrigation and fixing land titling.
  7. Stop expanding the scope of already bogus schemes: Repeal the Food Security Bill and replace with targeted (families with girl children) food vouchers. Simultaneously, allow unimpeded (remove all marketing/distribution restrictions) market forces to deliver supply response. No society can subsidise two thirds of its population for anything. Gathering resources from all using higher indirect taxes and then using FCI (whose costs are 4 times markets) to deliver food (with self admitted 40-50 per cent plus leakage) to two thirds of the country’s indirect tax payers has to be the most dishonest piece of legislation ever enacted!!
  8. Facilitating access to education ubiquitously: Government delivery of education has proved to be thoroughly inadequate. The state should not be setting up buildings and recruiting staff. Focus on enabling educational and outcome/accreditation testing at multiple levels to allow the state to get out of running schools, colleges etc. Offer strict outcome based reimbursements as well as vouchers to low income households prioritised by merit and priced by means and social objectives. Current infrastructure should be rented out on shift basis to the private sector and resources should be reused to provide access to defined prioritised need based beneficiary using vouchers. The vouchers should entitle recipient to all variable costs of service delivery along with a fraction of the regular fixed cost recovery. This will ensure all facilities are fully utilised, the poorer have access but also that the service providers have resources and incentive to enhance capacity and increase supply. Also, if the state cannot fund sports teams or cultural programmes it should facilitate private citizen initiatives and enable and encourage it.
  9. Solid waste disposal infrastructure and water management: Ensuring availability of water ideally through rain water harvesting friendly building codes in a country rich in annual precipitation but poor in ground water resources. Create modular infrastructure for waste disposal and drainage after recycling.
  10. All efforts towards improving the standard of living will be fruitless if the country remains vulnerable to attacks. Defence is and should remain a top priority along with building disaster management capacity.
  11. Build a fund to assuage victims of any deficiency in service delivery by the government i.e. trauma, crime and natural calamities etc and enter into tie ups with countries like Japan etc to learn the best practices in disaster management and train the personnel.

The Indian government has been operating on the unfounded belief that it is omniscient and omnipotent and omni-competent. Broader charity is a wonderful thing but the state must fulfil its basic responsibilities first, else it will keep loads more in need of charity. The state should facilitate charity by selling vouchers to those willing to donate for a particular Aadhar number for their education or medical expenses etc. The main impediment to those wanting to donate more is a presumption of defalcation and specificity; state facilitation with no leakage will help overcome this issue. Reimburse NGOs that run the best (defined scorecard) orphanages, schools etc. While the state should give social recognition to all those contributing, it should be wary of those who see someone’s need, protest and reach into someone else’s pocket to do charity just incidentally benefiting themselves.

Government overstretch across economic and social activity has resulted in it falling short of fulfilling even the basic, traditional duties of safeguarding life and private property. More and more of government’s resources are being spent on “private goods” while ever less is being spent on the things that only the government is equipped to do. The administration in the recent past has been marred by kickbacks on nearly anything that can be put out to tender and unnecessarily wasteful construction projects to maximize the rents that they can generate. Unsurprisingly, there is an increasing recognition of the fact that government intervention should not be equated with direct provision by the government. But firstly, there is a need to change outlay orientation to outcome driven government spending removing cleverly packaged wasteful expenditure.

Bloated organisations need to sharpen their focus to increase effectiveness.  Media monitoring of government performance and exposing corruption is now stirring the large middle class out of its slumber and bringing it to the streets and hopefully the polling booths. Hopefully this scrutiny will force the government to recognise that it is not a deity handing out largesse but rather a service organisation subject to scrutiny on its efficacy in delivering public goods and creating an equitable enabling environment.

The author is Managing Partner, Baring Private Equity Partners India Limited. If you have any comments/questions please feel free to write to the author-