Indian politicians -their precept and practice

 It is said "there is a world of difference between precept and practice"- more so with our politicians and the gap widens when they speak about it more.!!

It is generally thought that Political lies are always for exploiting the ignorance of the public. Mostly they are manipulative for winning the elections. But there are times like Obama lies about Health care inorder to push through some legislation to benefit the larger society(link).

However coming to India, Politicians throw promises at the people mainly to win elections and then they renege on the promises made.

In the recent few weeks there are lot of accusations by the Opposition parties against the Central Govt that Question Hour in the ensuing Parliament has been abolished muzzling the freedom of MPs to ask Govt questions about peoples' problems to elicit answers from the Govt. But there are two stark statistics contradicting the so-called champions of freedom of expression in the Opposition. In the last few years Question hour in the parliament has been wasted for 60% of the time by the unruly Oppositions marring the proceedings of the house. Another interesting point is that in the Opposition ruled West Bengal Question Hour has been suspended by the Govt in view of the prevailing pandemic.!!

So this is clearly double standards adopted by the Opposition and it is raised against the Central Govt only to embarrass it and score some brownie points in the media.

Many of the Opposition ruled State Govts prune the budget of the local bodies saying that the State level finances are severely constrained. But if the Central Govt does it, all of them raise their voices against the Centre saying that the Central-State relationship is severely undermined and the trust of cooperative federalism has been betrayed by the Centre. They have no such qualms when they repress the local bodies by not releasing the funds to them. These are the doublespeak adopted by the opposition parties as a matter of right and pride.Our society does not relish this behaviour of politicians which they do not understand.

Centre and States are like two important organs of the body which is India. Both must work in tandem and in coordinated rhythm. Brain cannot let the Heart down and Heart cannot afford to stop blood supply to Brain. They cannot be at loggerheads with each other. This is the fundamental concept which Politicians must keep in their minds while performing and discharging their Constitutional duties.

Compensation to States and Borrower of the Last resort!

 India's FM is an unenviable position. Given the penchant for two steps forward and one step backward in all economic decisions, FM is in the eye of the storm unendingly ever since the pandemic struck India. In fact, even before that, India's GDP was sliding YOY from 2016-17 onwards. It hit a high of 8.26% in 16-17 and hit the lowest so far in Fiscal 19-20 at 4.2%.

GST collections have also ebbed along with the GDP since even Nominal GDP has grown only by 7.2% in Fy 19-20.It was growing at 11.76% in Fiscal 16-17. So, this skidding of the nominal growth rate coupled with a reduction in GST rates in 2018 led to a shortfall in GST collections even though the tax base widened. The good thing about the One Nation, One tax has been the acceptance of this Taxation in lieu of VAT at the individual state level and Excise duty at the Central level. The consensus behind GST has been bought by Arun Jaitley with the commitment for providing Central funds at the growth rate of 14% YOY to the individual States, by levying Compensatory cess on luxury and sin goods. However, the Central Govt is caught on the wrong foot this year due to the pandemic. The tax collections are abysmally low and this has forced the Central Govt. to consider reneging on its promise of providing compensatory funds to the states.

In the recent 41st GST Council meeting, FM has been compelled to use the insurance phrase of Act of God i.e force majeure(or Hand of China?!), to describe the extraordinary situation due to the Covid pandemic. Due to this compulsion, the Central Govt has presented two options to the States to consider and give their replies in a week's time. Under Option 1 States may borrow Rs.97K cr at a special interest rate and the principal and the interest will be later on paid out of Compensatory cess on Cars, Soft drinks, tobacco, pan masala, and coal. Under Option 2 States can borrow up to Rs.2.35lac cr and States will have to pay interest at the market rates.Only the principal will be paid out of Compensatory Cess later and the interest will have to be provided in the States' Budgets. In this GOI has made a fine distinction between GST implementation loss and Covid induced tax revenue loss which is also hair-splitting and needlessly academic, if not contentious.

Now the overall emerging scenario is one of confrontation between the Centre and the States. All economists are now supporting the States saying that since it is the commitment of the Central Govt. it has to find the resources for funding this GST collection shortfall. Of course, they are of the view that the Central Govt can source this fund at a much cheaper cost than what the States could bargain for.This is an important point. However Finance Secretary has gone on record saying that if the Centre resorts to this borrowings, overall bond yields may go northwards, which will raise the cost of borrowings for both the Public sector and Private Sector. As a consequence, the sovereign rating of the country may be adversely impacted which will be detrimental to the interests of all sectors of the economy. But the moot point is this can happen even if States borrow for this purpose.

In the meantime some of the opposition ruled states are considering approaching SC for a direction to the Central Govt, saying that the Centre is trying to hide behind AG's legal opinions, shirking its responsibility in honoring the revenue commitment in letter and spirit. But such an outcome may not augur well for federal relationships and for the future of cooperative federalism which is touted as the big success point behind GST introduction.

However, in all this surcharged situation over who should shoulder the borrowing burden, the missing point is how well or badly States are containing their deficits in the last few years despite being given higher level of funds without much of efforts from their side. Any additional funds given without caveats are being frittered away by them in giving freebies, free EB and in unplanned revenue expenditure. So who is going to discipline them and rein in their penchant for spending without answering for outcomes? Even in May 20, when Centre gave permission for Additional borrowings through the WMA window, many states incl. Tamilnadu objected to the thinnest of the sticks like DBT transfer of EB subsidy to BPL families, that came with the carrot. States only want the carrot as their right without any strings being attached.

That said, Central Govt. must seize this opportunity to bring to light the importance of fiscal discipline at the State level by finally agreeing to resort to the borrowings on their behalf.

If you consider the Center and the State as the right and the left hands of the same person, sometimes when your right hand is full of weight to be lifted, the left hand also should chip in to bear the weight in order to balance it. Left cannot accuse the right of transferring some of the weight to it!!

Reforms in Power sector.

Central Govt announced Rs.90K cr rescue package for power gencos through PFC and REC.But PRAAPTI ( Payment Ratification And Analysis in Power procurement for bringing Transparency in Invoicing of generators) website shows that the total overdue amount to be paid to Gencos stood at Rs.113.8K cr at the end of May 2020 continuously going up for the last 18 to 24 months. The total outstandings were Rs.125.6K cr.link.

Apart from this, there is renewable energy generation pending to be adjusted against captive consumption of factories which is not yet visible.This may be another iceberg submerged.

After clearing Rs.90K cr.as per GOI plan  stated above, how the state discoms are going to manage their future liabilities.

With a negative gap between Average Cost of Supply(ACS) and Average Revenue Realised at Re.0.41 per unit on an All India basis, it is a losing game. AT & C loss is also still very high at 18.72%link.UDAY (Ujwal Discom Assurance Yojana) commitments lie in tatters.

All the UDAY Targets remain unfulfilled. The website says there are no newsletter releases after Jan 2019 and that sums up the state of affairs under UDAY. UDAY is now Asthamana.It looks like an orphan.

Targets on All India basis set were:

Feeder Metering                                   30th June 2016 
DT Metering                                          30th June 2017
AT&C Losses                                        15% by FY 2019
Consumer Indexing & GIS Mapping      30th Sep 2018
Upgradation of DT,Meters etc.              31st Dec 2017
Smart meter for Consumers                >500 units by Dec 2017;>200 units by Dec 2019
Elimination of ACS-ARR gap                 FY 2019

Smart metering completion is at 6% - 7%  on All India basis as per the website UDAY.in whereas , it should have been completed  100% by Dec 2019 according to the Targets set.

Are there methods amidst madness to come out of this mess?. There are practical methods to bring down AT &C loss by upgrading the cable quality.adoption of smart metering etc. But the easiest way to do is by horizontal deployment across states. State of Himachal Pradesh has the lowest AT &C at 5.62%. There are great lessons for other states to learn from them. The lowest gap between ACS and ARR is in Gujarat at just 4 paise. This will open the eyes of other States.This cross fertilisation of ideas is the way forward to healthy federal competition.

Many political parties give electoral promises of free electricity to farmers to win elections and in the guise of farmers many use free electricity even for their farm houses. This misuse is rampant across India.

The best way to counter this is to transfer subsidy given to marginal farmers to their Jan dhan account and charge uniformly for agri sector. Another method could be charge 10 paise for a unit for agri activity instead of calling it free and increase this tariff every year by indexing it to CPInflation for those agriculturists consuming more than 1000 units per annum.