#94 Reforms: Caught Consensus, Bowled Hubris

This newsletter is really a weekly public policy thought-letter. While excellent newsletters on specific themes within public policy already exist, this thought-letter is about frameworks, mental models, and key ideas that will hopefully help you think about any public policy problem in imaginative ways. It seeks to answer just one question: how do I think about a particular public policy problem/solution?

PS: If you enjoy listening instead of reading, we have this edition available as an audio narration courtesy the good folks at Ad-Auris. If you have any feedback, please send it to us.

PolicyWTF: What Broke the Constitution’s Seventh Schedule?

This section looks at egregious public policies. Policies that make you go: WTF, Did that really happen?

— Pranay Kotasthane

The Seventh Schedule of the Consitution has three lists scoping out the responsibilities of the parliament and the state legislatures. List I contains the subject-matters over which the parliament has exclusive power to make laws (defence, foreign affairs, banking etc.). List II does the same for state legislatures (health, public order, water, land, agriculture). List III contains subject-matters on which both the parliament and state legislatures can legislate (education, forests etc.).

Looks neat. Except that this assignment of powers hasn’t stopped union governments from designing and funding hundreds of schemes that squarely fall under List II — National Health Mission, Swachch Bharat Mission, Pradhan Mantri Awas Yojana, to name a few. You would imagine that these schemes, known as Centrally Sponsored Schemes (CSS), would be opposed tooth and nail by state governments, right?

Wrong. We’ve reached a low-level equilibrium where the state governments have grudgingly reconciled to the reality of CSS. They oppose it on paper or complain to Finance Commissions but are also happy to receive funds as part of these union government-sponsored schemes. And so, successive union governments have continued to misuse Article 282 of the Constitution — which permits union and states to make grants for any ‘public purpose’ regardless of where that purpose lies in the seventh schedule — to interfere with state subject-matters.

With no clear effective assignment of responsibilities, it is not surprising that people expect prime ministers to provide them with water supplies, public order, and clean streets, none of which are union government subjects. Without a clear assignment, there is no way to fix accountability. Without accountability, citizen preferences don’t matter. The State does what it can and citizens endure because they must.

In short, the Seventh Schedule is broken. As NK Singh, Chairman of the 15th Finance Commission argues: there’s a need to change the Seventh Schedule and Article 282, both. Absent that, we will keep CSS proliferating depending on how populist a union government wants to be. At present, there are approximately 211 schemes and sub-schemes under the 29 umbrella CSS!

For more, read:

* Ten Little Schemes, my article for Pragati

* Chapter 5, Review of Inter-Governmental Transfers and Consolidated Public Finance, Report of the Fourteenth Finance Commission, Volume 1.

* Rationalising Central Schemes, The Financial Express, M Govinda Rao

India Policy Watch #1: Missing Artists in Our Polity

Insights on burning policy issues in India

— RSJ

The farmers’ protests are now into their third week. The Union government seems to be in the mood for talks with farmer leaders now; after trying out the other alternatives, namely, barricading road, lathi-charging and using water cannons in cold Delhi winter. We aren’t sure about the kind of compromise that will be worked out. The track record of the government in arriving at a common ground isn’t great.

That we have fluffed our lines on reforms in a sector that needs them direly is quite incredible. It is starker when you consider the numerous expert committees in the past that have recommended exactly what the new agriculture laws aim to achieve. These recommendations have had broad-based support from most political parties and even made their way into their election manifestos. With such support and history, you’d expect we would have got these much-needed reforms off the ground. Yet we are struggling with it. It’s an object lesson in public policy implementation.

A Reform Whose Time Has Come

We have made our arguments in support of farm reforms before. No one can claim with conviction our agriculture policies have been a success since independence. The entire agriculture value chain – from pricing, storage, distribution and purchase – has been in a regulatory chokehold that was designed during the early 60s. Faced with successive failures of monsoon and with the memory of famines (Bengal, particularly) still fresh, we had to seek US support to import food grains under the PL 480 scheme. The scars of that event led to the Green Revolution that saw a dramatic increase in agriculture productivity.

Agriculture in India is a state subject. So, alongside the miracle of the Green Revolution, a majority of Indian states decided to enforce the Agricultural Produce and Market Regulation (APMR) to ensure food security. Soon, the purchase and the auction of food grains was restricted to the markets that were run by the state. The Agricultural Produce Market Committee (APMCs) and their mandis became the only legal buyer of the farmers’ produce. This was in keeping with the spirit of the times. The Indian state was in a massive expansion drive. It swallowed the whole of agriculture.

What has the past half-a-century of this state control given us? It is important to summarise the points again to appreciate how the status quo cannot be the answer.

* We achieved food surplus by the early 80s, but we didn’t stop the Food Corporation of India (FCI) continue the practice of buying wheat and rice at Minimum Support Price (MSP). The MSPs have continued an upward trajectory ever since. Where are we today with this policy? The FCI godowns today are bursting at seams with about 100 million tonnes (MTs) of food grains as against the buffer requirement of about 40 MTs. The burden of supporting FCI procurement is a huge drain on the exchequer. The 2020 budget had set aside Rs 1.36 lakh crores as FCI borrowings to support the MSP regime. The unintended consequences of this borrowing on our fiscal health are a separate story. This is the price we pay to sustain MSP.

* The farmers of Punjab and Haryana who constitute the bulk of protesters have a reason to feel aggrieved with the dismantling of the current system. Take rice for example. Only about 12 per cent of farmers benefit from MSP in India. That same number is north of 90 per cent in Punjab and in a similar range in Haryana. MSP support to rice has created a scenario where a primarily wheat eating region like Punjab is the biggest producer of rice in the country. This coupled with free electricity to farmers has meant a significant reduction in groundwater levels in these states. The narrow focus on these two food grains has meant we run a deficit in other crops including dals, oilseeds and other cash crops. We import these while continuing to produce surplus rice and wheat every year. The local variety of grains that are hardy and require less water (jowar, bajra and ragi) have all but disappeared from our plates over the years. Separately, the desire to raise two crops every year leads to farmers in Punjab burn their stubble. This adds to Delhi’s gas-chamber like pollution. Lesson: incentives matter and negative externalities are real.

* The Essential Commodities Act (ECA) that runs in parallel with the APMC makes things worse. The Union government periodically imposes stock holding limits for various grains and takes away the market flexibility to manage supply-demand swings. This has meant there are no organised sector entities in the agriculture supply chain to manage the storage. No wonder tur dal or onion prices skyrocket at various times in the year. Our retail inflation sways to these price movements.

* The upshot of it all? Agriculture with about 16 per cent contribution to our GDP supports about 60 per cent of our population. Less than 1 per cent of farmers own 10 hectares of land that can be considered optimal to pursue agriculture as an enterprise. The rest are in subsistence farming. Like we have asked before, how can anyone argue to continue with this system?

How Not To Reform

Despite this, we seem to be in a situation where we have to negotiate and may be dilute the three bills that sought to reform the farm sector. The bills allowed the sale of farm produce to players outside APMC, relaxed stocking restrictions under the ECA and enabled contract farming. The problem was correctly diagnosed, and the right solution offered. So, what could go wrong?

* Agriculture is a state subject. Any big reform needs consultations with state governments, farmers, and the opposition. Since a broad consensus on these reforms had emerged from the reports of various expert panels over the years, this could have been a process less fraught than what has been seen in the case of GST or other reforms that needed a federal consensus. Yet there were no deliberations. The manner of passing the bill especially in Rajya Sabha where a debate was avoided, and a voice vote was used to pass them through betrayed a lack of faith in parliamentary procedures.

* There is a strong desire for a big reveal that underlines the way the PM operates. This is how all key measures – from demonetisation, amending Article 370, CAA and labour reforms – have been announced and then pushed through. The desire to stun the nation with a bold move is seen to be the key to make a decision. This doesn’t help in managing change that big reforms entail. There is wider anxiety among the impacted stakeholders if things aren’t discussed and deliberated. This is further stoked by the minority that wants to stonewall these reforms. The opposition also latched on to this opportunistically. That’s how this has played out. Then the usual bogey of big corporates (Ambani and Adani) was raised. There’s always a currency for this in India.

* The desire and speed for a bold move have invariably meant poor anticipation of unintended consequences of these reforms. Clauses that can only be called illiberal have seen their way through these laws including those where the executive is given powers to adjudicate with no remedial mechanism to appeal against the decision in civil courts. This won’t stand in any court of law.

* Lastly, when confronted with the first signs of protests, the entire playbook of how not to manage protests was put into action. First, the police force was deployed to break the protests. Then the protesters were dismissed as rich farmers or middlemen protecting their turf. Finally, they were branded terrorists and anti-nationals before some mediation was attempted.

Missing Artists?

The unfortunate outcome of this might be the wrong lessons we will learn for future – that reforms are difficult to implement. Further, as Pratap Bhanu Mehta writes in the Indian Express there is a greater loss to the polity that’s likely:

“Chances are that, for the moment, given its overwhelming power, the government will ride out the protests. But the simmering discontent will remain. Cooperative federalism is in tatters, and the weakness of political parties means protests now take an amorphous form. Given the far-reaching changes we need in agriculture in Punjab, it is important that the trust between the state and the farmer remains. A good faith dialogue that gives the farmers reasonable assurances and a face-saver is necessary. It is easy for the government to win. But how many times in Indian politics have we won short-term victories that create long-term political precariousness?”

Over the years we have gotten used to the many reasons why we haven’t seen structural reforms gather pace in India. These have ranged from coalition compulsions, lack of majority in both houses, absence of political will, obstructionist opposition or ‘too much democracy’. As the farm reforms saga shows, these are mere ruses.

Politics is the art of possible. And we are missing those artists.

India Policy Watch #2: Lessons for Politics in Radically Networked Societies

Insights on burning policy issues in India

— Pranay Kotasthane

Beyond the specifics of India’s agriculture, some broader lessons come out of the ongoing logjam for politics and policymaking. Some quick intuitions here:

* Vocal Local is also the Global. The Canadian PM’s comments are an indication of a broader trend. No political issue is purely “internal” to a State anymore, at least as far as narrative-building is concerned. With networked communities, this trend will become stronger as outrage is the new form of entertainment. A corollary is that stakeholders with more narrative power but little interest in the issue can end up setting the narrative. Just like the ISI using this issue to fan Khalistani separatism again.

* Popular governments will try to bypass parliaments in crises citing the need for fast-tracking reforms in the backdrop of COVID-19.

* More of the same. No statement or action by the government and the opposition suggests a realisation that they aren’t willing to come together to tide over India’s first recession after 40 years. Unfortunate.

HomeWork

Reading and listening recommendations on public policy matters

* [Article] Sandip Das on “A fiscal crisis: Why FCI needs provisioning in food subsidy”

* [Podcast] On Puliyabaazi, Saurabh and Pranay speak to Gunwant Patil of the Shetkari Sangathana Farmers’ Movement on the three farm laws.

If you like the kind of things this newsletter talks about, consider taking up the Takshashila Institution’s Post Graduate Programme in Public Policy (PGP) course. It’s a 48-week in-depth online course meant for working professionals. Applications for the Jan 2021 cohort are now open. For more details, check here.

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit publicpolicy.substack.com