Every thing you want to know about Indian bond market but were afraid to ask

The Indian bond market is vertically split between foreign banks who make profits trading government securities, and state-owned banks that have 70% market share in banking assets

A senior executive of an old private bank who had spent many years in a large state-owned bank’s treasury was all smiles last week, narrating to me what happened in the bond market on 3 April. “The foreign banks were begging for securities... They were shorting the market, bringing down the prices. How long the public sector banks would tolerate that and make losses? Why would they lend securities to the short sellers to meet their delivery obligations?” he asked. The short selling and short squeeze that the market witnessed were hotly debated early this month at the Fixed Income Money Markets and Derivatives Association’s annual offsite in Sydney which this gentleman attended.

My last week’s column dealt with this in detail (The untold story of India’s bond market, 17 April). At the moment, the Indian bond market is vertically split: On the one side, are the foreign banks and primary dealers who make profits trading government securities and, on the other, are state-owned banks that have roughly 70% market share in banking assets and believe in holding on to their bond portfolio to earn coupon or a periodic interest payment earn during the time between the issuance of a bond and its redemption.

The intense fight between the two groups (or, bulls and bears) came to the surface in March, the last month of the financial year 2017, and April, which marks the beginning of a new financial year.

The timing is critical to appreciate the development. All banks in India need to mandatorily invest 20.5% of their net demand and time liability or NDTL, a loose proxy for their deposits, in government bonds and many hold even a larger bond portfolio. The mandated 20.5% holding can be kept in the so-called held to maturity or HTM segment, insulating it from the movement of the bond prices in the market. However, the rest of the portfolio—kept in the so-called available for sale (AFS) and held for trading (HFT) baskets—needs to be valued in accordance with the prevailing market price or marked to market.

As the financial year draws to a close, treasury managers in public sector banks would always be happy if the prices rise as that prevents the mark to market losses. If the prices go down below the price at which the bonds were bought, the banks are required to set aside money or provide for the notional loss. So, they buy heavily and the demand for bonds leads to a rise in the prices. The foreign banks and primary dealers go short—meaning, they sell the securities which they do not own. The selling pressure brings down the prices and hits the public sector banks hard.

In the beginning of a financial year too, we often see a repeat of this. There are a couple of reasons behind this. Unlike the foreign banks and even the private sector banks where one spends decades on the treasury floor understanding the nuances of the business, in most public sector banks, treasury is among several divisions where one would spend a few years before being transferred to another. Typically, this transfer takes place in May-June and the treasury managers want to say goodbye with a winning note. This means, they buy heavily leading to the rise in bond prices.

Besides, the Reserve Bank of India (RBI) every year gives all banks one opportunity to reshuffle their bond portfolio—shifting securities from the HTM basket to the AFS and HFT baskets. This typically happens in the beginning of the year. The banks can also sell securities from the HTM basket but only up to 5% of the portfolio. If they cross the limit, then the entire HTM portfolio becomes vulnerable as it would need to be marked to market.

The bond dealers in foreign banks, by being there for decades, know exactly what the state-run banks’ treasury managers are up to at different parts of a fiscal year and accordingly, they plan their actions. For the first time on two successive occasions in March and April, we have seen the public sector banks ganging up and launching a counter attack.

On both occasions, the banking regulator stepped in and brokered a truce, but how do we prevent recurrence of such ugly fights that threatens the stability of the bond market? As on 31 March, the total outstanding government securities (both central government as well as state development loans) were around Rs47.5 trillion and close to 60% of this or Rs28.63 trillion was being held by commercial banks. Insurance companies, provident funds, pension funds, mutual funds, primary dealers and cooperative banks also buy government bonds. Even though banks buy the bonds to meet their statutory liquidity ratio or SLR obligation, there is not much of liquidity in the market as the banks and insurance companies mostly buy them but don’t trade.

The challenge is to get liquidity across the yield curve. Former RBI governor Raghuram Rajan in 2016 tried to use the primary dealers (there are 21 of them) to play the role of market makers by giving two-way quotes for four securities each but that experiment has not been a success. Lifting the 5% limit on sale of securities from the HTM basket and doubling it to 10% may help in creating liquidity in the market. Banks need flexibility in managing their bond portfolio as anyway they are forced into directed bond buying in an imperfect market where yields get manipulated even by the regulator at times to bring down the cost of government borrowing. Bringing down the HTM portion will force the banks to trade bonds and create liquidity but this may end up creating too much volatility which the banks may not be able to handle.

I understand that the department of financial services in the finance ministry is in favour of ending the SLR requirements that forces banks to buy bonds and curbs their ability to lend. The N.K. Singh committee that reviewed the rules on fiscal discipline has in its report also advocated paring SLR. Indeed, it has been progressively coming down—from 38.5% of deposits in early 1990 to 20.5% now—but unless the fiscal deficit of the government comes down, the SLR requirement cannot come down dramatically. The government has pegged the fiscal deficit at 3.2% of India’s gross domestic product in 2018 and after adjusting for buyback of bonds, the net borrowing programme in 2018 remains almost unchanged from the previous year—Rs3.48 trillion. Without the adjustments, the net borrowing is Rs4.23 trillion and the gross annual borrowing Rs5.8 trillion.

Most Indian banks have made treasury losses in the last quarter of fiscal 2017 but overall, it has been a great year for treasury managers. Between 1 April 2016 and 31 March 2017, the benchmark 10-year bond yield dropped from 7.45% to 6.68%. After fiscal year 2009 when bond yields dramatically dropped following an ultra-loose monetary policy by the RBI in the aftermath of the collapse of iconic US investment bank Lehman Brothers Holdings Inc., both 2015 and 2017 have been great years for the treasury managers. However, unlike Indian farmers who always pray for a good monsoon for a bumper crop, bond dealers cannot forever look for a drop in yield and rise in prices to make money; they need to build expertise in risk management.

Indeed, the short sellers in the bond market spoil the party of the public sector banks but the public sector banks have the crutches of HTM to ward off the adverse impact of the rising yield while foreign banks typically mark to market their entire bond portfolio following international practice. The state-owned banks also have a much a larger bond portfolio to move the market. Moreover, there have been occasions when these banks managed to convince the banking regulator to allow them back dated transfer of securities from AFS to HTM to shield them from the impact of rising bond yields. It happened in June 2004 when the yield rose some 75 basis points in May-June (from 5.16% to 5.92%) and also in August 2013 after a 200 basis points rise in 10-year benchmark bond yield (from 7.15% to 9.15%). On both occasions, the RBI bailed them out.

All bond dealers are expected to follow the principle of PVBP (price value of 1 basis point) on a continuous basis or remain aware of the risk that a 1 basis point movement in yield poses to the bond portfolio. Do all dealers in the state-owned banks follow this? If they do, then why did they buy the long-dated securities in January-February when the banks were flush with fresh deposits (and hence they had to invest in bonds) because of the demonetization drive but they knew well that the bulk of those deposits would flow out soon (and this would bring down their SLR requirement).

While the bond dealers in the state-owned banks need to appreciate the finer aspects of risk management, the aggressive short sellers must be forced to pay a higher price for taking risks. This can be done by introducing negative interest rates when they borrow securities from others in the market through the repo or repurchase deals on the Clearcorp Repo Order Matching System or CROMS platform of Clearing Corporation of India Ltd. Currently, CROMs does not have a provision for a negative interest rate for repo deals but I am sure that the software can be tweaked to introduce this.

Niti Aayog meet: States to get greater say in new national planning regime

At Niti Aayog meeting, PM Narendra Modi vows to address growth imbalance, asks states to take lead in move to a January to December fiscal year

Prime Minister Narendra Modi and state chief ministers on Sunday considered a new approach in policy planning that aims to give states a greater say in determining national priorities—including in internal security and defence—set out in a 15-year vision and a draft three-year short-term action plan ending 2019-20.

The vision document and the draft 300-point action plan prepared with suggestions from states and gram sabhas rest upon the spirit of cooperative federalism that succeeds the Nehruvian era’s centralized five-year planning that drew to a close on 31 March with the end of the 12th five year plan. They were discussed as part of the Niti Aayog’s third governing body meeting. The vision document projects the economy to grow more than three-fold to Rs469 lakh crore by 2031-32, from Rs137 lakh crore in 2015-16, assuming an 8% annual growth.

“Niti Aayog is a collaborative federal body whose strength is in its ideas, rather than in administrative or financial control,” an official statement quoted Modi as saying in his opening remarks to the think tank. He promised states that regional growth imbalance will be addressed both nationally and within states. The Prime Minister also suggested that states should take the lead in changing the financial year to January-December and “carry forward the debate and discussion on simultaneous elections.” The idea is better economic and political management of the country. Modi also urged states to put in place State Goods and Services Tax (SGST) laws without delay and to speed up capital expenditure and infrastructure creation.

Niti Aayog tweeted that the long-term national development agenda up to 2031-32 extend the traditional plan mandate to include internal security and defence. By 2031-32, the country should be “highly educated, healthy, secure, corruption-free, energy abundant, environmentally friendly and globally influential,” it said.

Niti Aayog vice-chairman Arvind Panagariya told reporters after the meeting that the action plan assesses the revenue available to the union and state governments over the next three years to suggest enhanced spending on priority areas like health, infrastructure, agriculture and rural economy. The action plan will be finalized after states give their feedback.

The governing body also reviewed the progress in drafting a Regulatory Reforms Bill, a model Agriculture Land Leasing Act, changes to the Agricultural Produce Marketing Committee Act, a national energy policy and strategic disinvestment of state-owned enterprises.

Madhya Pradesh chief minister Shivraj Singh Chouhan made a presentation on doubling of farmers’ income, by focusing on irrigation, technology generation and dissemination, market reforms and livestock productivity.

The short-term action plan coincides with the remaining three years of the 14th Finance Commission’s award period ending in 2019-20 as it gives certainty on the cash flow of central and state governments for the period.

Shaping the country’s development plan with state governments consolidates the resetting of centre-state relations under the co-operative federalism achieved through higher untied fund allocation to states from the centre’s divisible pool of taxes (without specifying end-use) and the setting up of the goods and services tax (GST) Council, in which neither the Union nor the state governments can take decisions without the support of the other.

GST reflects the spirit of “one nation, one aspiration, one determination,” Modi said. He said that the share of central funds to states that are tied to specific central projects have come down from 40% of total allocation in 2014-15 to 25% in 2016-17 with a corresponding increase in funds which are not linked to specific schemes, giving states greater freedom in their utilization.

The meeting also reviewed Niti Aayog’s move to encourage states to excel in various governance parameters by comparing performance.

Experts welcomed the move to foster competition among states.

“Competitive federalism is a very good strategy. Comparing states on ‘ease of doing business’ is a good first step. Now states must be compared on the pace at which they are creating jobs and livelihoods, improving health and education for citizens, and developing local governance capabilities,” said Arun Maira, former member of the Planning Commission.

Modi said it was the collective responsibility of the gathering to envision the India of 2022—the 75th anniversary of independence—and see how the country could swiftly move forward the goals set in the vision document.

The prime minister told states that advancing of the Union budget date to 1 February in 2017 from the customary last day of the month was meant to make funds available for various schemes so that they could be utilized in time, especially for farming before the monsoon arrived. Dropping the distinction between plan and non-plan spending has enabled the authorities to focus on welfare spending, Modi said.

End of Red Beacons : A big blow to VIP culture

End of Red Beacons : A big blow to  VIP culture

“Well begun is half done.” That was what the famous Greek philosopher said. Union Cabinet’s decision of doing away with the lal batti culture is a good start for a battle that can prove to be a long one.

On Wednesday, April 19, 2017, the Union Cabinet decided to amend the Motor Vehicle Rules to end the use of red or any coloured beacon by all, including the President, Vice President and the Prime Minister. “Every Indian is special. Every Indian is a VIP,” Prime Minister Narendra Modi tweeted soon after.

 “The Union Cabinet, in its meeting chaired by Prime Minister Shri Narendra Modi today decided to do away with beacons of all kinds atop all categories of vehicles in the country. The government is of the considered opinion that beacons on vehicles are perceived symbols of VIP Culture, and have no place in a democratic country. They have no relevance whatsoever. Beacons, however, will be allowed on vehicles concerned with emergency and relief services, ambulance, fire service etc. In the light of this decision the Ministry of Road Transport & Highways will make necessary provisions in the law,” was the brief statement by the Ministry of Road Transport & Highways.   

Immediately, the next day, i.e. on Thursday, April 20, 2017, gazette notification was issued.

Soon after, the television channels and news portals were flashing the breaking news even as the social media was full of gleeful messages. The wide spread joy at the news that had a direct bearing on few thousand people – those whose cars were allowed beacons, red, orange or any other colour – sent a message to the scores of tens and thousands of others. The message that can be seen as assurance. The message that can be seen as promise. The message that signifies a change. The message that can be seen to end discrimination.

The Supreme Court Ruling

The government has taken forward a Supreme Court ruling of December 2013. It had sought to restrict the use of red beacons even with an amendment in the relevant law. The Supreme Court, while hearing the petition on VIP culture, observed, “One of the issues highlighted in the note was that if the instinct of power is concentrated in few individuals, then naked greed for power will destroythe basics of democratic principles. But, what we have done in the last four decades would shock the most established political systems. … … … The best example of this is the use of symbols of authority including the red lights on the vehicles of public representatives from the lowest to the highest and civil servants of various cadres. The red lights symbolize power and a stark differentiation between those who are allowed to use it and the ones who are not”.

The Amicus Curiae in the case had informed that the red beacon had actually become a status symbol and those using such vehicles treat themselves as a class different than ordinary citizens. He also told the Court that “the widespread use of red lights on government vehicles in the country is reflective of the mentality of those who served British Government in India and threatened the natives as slaves.” 

Cabinet Announcement brings cheers

Soon after the announcement by the Union Cabinet, Chief Ministers of several states announced removal of beacons from their cars. These included Chief Ministers of Maharashtra, Madhya Pradesh, Uttarakhand to name a few. Several other states too followed suit. It was an attempt at redemption so to say. Some others like the Chief Ministers of Tripura and Delhi have not been using red beacons earlier too. More recently, soon after their swearing in as Chief Ministers of Punjab and Uttar Pradesh, both Amarinder Singh and Yogi Adityanath declared that they will not be using any red beacon cars. Newspaper reports indicate that the Supreme Court Judges and the Election Commission of India have also ordered removing of beacons from their cars.

‘Every Indian is special. Every Indian is a VIP’

The Union Cabinet’s decision to do away with the lal batti culture is indeed a welcome step in right direction. Prime Minister Narendra Modi tweeted: “Every Indian is special. Every Indian is a VIP.”

Every Indian is special. Every Indian is a VIP. https://t.co/epXuRdaSmY

— Narendra Modi (@narendramodi) April 19, 2017

After this, one can hope that the access or the privileges that come with the VIP tag would soon be gone and each Indian would have opportunities on par. One can hope the poor is not deprived of good education for his child because of some VIP quota snatched away his ward’s admission to good schools funded by government. One can hope that a patient from remote hamlet will get treatment for a rare heart problem and not be sent away because some people with influence are to be given preference at public health facilities.

We can take pride in the fact that it is the Prime Minister who has himself promised: “Every Indian is special. Every Indian is a VIP.” Let us hope that this step will bring an end to the clout that red beacon symbolized.

Significant Achievements of NITI Aayog over the last three years.

Significant Achievements of NITI Aayog over the last three years.

       I.            Vision Document, Strategy & Action Agenda beyond 12^th Five Year Plan: Replacing the Five Year Plans beyond 31^st March, 2017, NITI Aayog is in the process of preparing the 15-year vision document keeping in view the social goals set and/ or proposed for a period of 15 years; A 7-year strategy document spanning 2017-18 to 2023-24 to convert the longer-term vision into implementable policy and action as a part of a “National Development Agenda” is also being worked upon. The 3-year Action Agenda for 2017-18 to 2019-20, aligned to the predictability of financial resources during the 14^thFinance Commission Award period, has been completed and will be submitted before the Prime Minister on April 23^rd at the 3^rd Governing Council Meeting

    II.            Reforms in Agriculture:

a. Model Land Leasing Law

Taking note of increasing incidents of leasing in and out of land and suboptimal use of land with lesser number of cultivators, NITI Aayog has formulated a Model Agricultural Land Leasing Act, 2016 to both recognize the rights of the tenant and safeguard interest of landowners. A dedicated cell for land reforms was also set up in NITI. Based on the model act, Madhya Pradesh has enacted separate land leasing law and Uttar Pradesh and Uttarakhand have modified their land leasing laws. Some States, including Odisha, Andhra Pradesh and Telangana, are already at an advance stage of formulating legislations to enact their land leasing laws for agriculture.

b. Reforms of the Agricultural Produce Marketing Committee Act

NITI Aayog consulted with the States on 21 October 2016 on three critical reforms –

(i)                 Agricultural marketing reforms

(ii)               Felling and transit laws for tree produce grown at private land

(iii)             Agricultural land leasing

Subsequently, Model APMC Act version 2 prepared. States are being consulted to adopt APMC Act version 2.

c. Agricultural Marketing and Farmer Friendly Reforms Index

NITI Aayog has developed the first ever ‘Agriculture Marketing and Farmer Friendly Reforms Index’ to sensitise states about the need to undertake reforms in the three key areas of Agriculture Market Reforms, Land Lease Reforms and Forestry on Private Land (Felling and Transit of Trees). The index carries a score with a minimum value “0” implying no reforms and maximum value “100” implying complete reforms in the selected areas.

As per NITI Aayog’s index, Maharashtra ranks highest in implementation of various agricultural reforms. The State has implemented most of the marketing reforms and offers the best environment for undertaking agri-business among all the States and UTs.  Gujarat ranks second with a score of 71.50 out of 100, closely followed by Rajasthan and Madhya Pradesh. Almost two third States have not been able to reach even the halfway mark of reforms score, in the year 2016-17. The index aims to induce a healthy competition between States and percolate best practices in implementing farmer-friendly reforms.

 III.            Reforming Medical Education

A committee chaired by Vice Chairman, NITI Aayog recommended scrapping of the Medical Council of Indi and suggested a new body for regulating medical education. The draft legislation for the proposed National Medical Commission has been submitted to the Government for further necessary action.

 IV.            Digital Payments Movement:

a.       An action plan on advocacy, awareness and co-ordination of handholding efforts among general public, micro enterprises and other stakeholders was prepared. Appropriate literature in print and multimedia was prepared on the subject for widespread dissemination. Presentations/ interactions were organized by NITI Aayog for training and capacity building of various Ministries/Departments of Government of India, representatives of State/UTs, Trade and Industry Bodies as well as all other stakeholders.    

b.      NITI Aayog also constituted a Committee of Chief Ministers on Digital Payments on 30th November 2016 with the Chief Minister of Andhra Pradesh, Chandrababu Naidu, as the Convener to promote transparency, financial inclusion and a healthy financial ecosystem nationwide.  The Committee submitted its interim report to Hon’ble Prime Minister in January 2017.

c.       To incentivize the States/UTs for promotion of digital transactions, Central assistance of Rs. 50 crore would be provided to the districts for undertaking Information, Education and Communication activities to bring 5 crore Jan Dhan accounts to digital platform.

d.      Cashback and referral bonus schemes were launched by the  Prime Minister on 14.4.2017 to promote the use of digital payments through the BHIM App. 

e.       Niti Aayog also launched two incentive schemes to to promote digital payments across all sections of society - the Lucky Grahak Yojana and the Digi Dhan Vyapar Yojana  –Over 16 lakh consumers and merchants have won Rs. 256 crore under these two schemes .

f.       Digi Dhan Melas were also held for 100 days in 100 cities, from December 25th to April 14th.  

    V.            Atal Innovation Mission: The Government has set up Atal Innovation Mission (AIM) in NITI Aayog with a view to strengthen the country’s innovation and entrepreneurship ecosystem by creating institutions and programs that spur innovation in schools, colleges, and entrepreneurs in general. In 2016-17, the following major schemes were rolled out:

a.       Atal Tinkering Labs (ATLs): To foster creativity and scientific temper in students, AIM is helping to establish 500 ATLs in schools across India, where students can design and make small prototypes to solve challenges they see around them, using rapid prototyping technologies that have emerged in recent years.

b.      Atal Incubation Centres (AICs): AIM will provide financial support of  Rs.10 crore and capacity buidling for setting AICs across India, which will help startups expand quicker and enable innovation-entrepreneurship, in core sectors such as manufacturing, transport, energy, education, agriculture, water and sanitation, etc.

 VI.            Indices Measuring States’ Performance in Health, Education and Water Management: As part of the Prime Minister’s Focus on outcomes, NITI has come out with indices to measure incremental annual outcomes in critical social sectors like health, education and water with a view to nudge the states into competing with each other for better outcomes, while at the same time sharing best practices & innovations to help each other - an example of competitive and cooperative federalism..

VII.            Sub-Group of Chief Ministers on Rationalization of Centrally Sponsored Schemes: Based on the recommendations of this Sub-Group, a Cabinet note was prepared by NITI Aayog which was approved by the Cabinet on 3^rd August, 2016. Among several key decision, the sub-group led to the rationalization of the existing CSSs into 28 umbrella schemes.

VIII.            Sub-Group of Chief Ministers on Swachh Bharat Abhiyan:Constituted by NITI Aayog on 9^th March, 2015, the Sub-Group has submitted its report to the Hon’ble Prime Minister in October, 2015 and most of its recommendations have been accepted.

 IX.            Sub-Group of Chief Ministers on Skill Development:Constituted on 9^th March, 2015, the report of the Sub-Group of Chief Ministers on Skill Development was presented before the Hon’ble Prime Minister on 31/12/2015. The recommendation and actionable points emerging from the Report were approved by the Hon’ble Prime Minister and are in implementation by the Ministry of Skill Development

    X.            Task Force on Elimination of Poverty in India:Constituted on 16^th March, 2015 under the Chairmanship of Dr. Arvind Panagariya, Vice Chairman, NITI Aayog, the report of the Task Force was finalized and submitted to the Prime Minister on 11^th July, 2016.The report of the Task Force primarily focusses on issues of measurement of poverty and strategies to combat poverty. Regarding estimation of poverty, the report of the Task Force states that “a consensus in favour of either the Tendulkar or a higher poverty line did not emerge. Therefore, the Task Force has concluded that the matter be considered in greater depth by the country’s top experts on poverty before a final decision is made. Accordingly, it is recommended that an expert committee be set up to arrive at an informed decision on the level at which the poverty line should be set.” With respect to strategies to combat poverty, the Task Force has made recommendations on faster poverty reduction through employment intensive sustained rapid growth and effective implementation of anti-poverty programs.

 XI.            Task Force on Agriculture Development: The Task Force on Agricultural development was constituted on 16th March, 2015 under the Chairmanship of Dr. Arvind Panagariya, Vice Chairman, NITI Aayog. The Task Force based on its works prepared an occasional paper entitled “Raising Agricultural Productivity and Making Farming Remunerative for Farmers” focusing on 5 critical areas of Indian Agriculture. These are (i) Raising Productivity, (ii) Remunerative  Prices to Farmers, (iii) Land Leasing, Land Records  & Land Titles; (iv) Second Green Revolution-Focus on Eastern States; and (v) Responding to Farmers’ Distress. After taking inputs of all the States on occasional paper and through their reports, the Task Force submitted the final report to Prime Minister on 31st May, 2016. It has suggested  important policy measures to bring in reforms in agriculture for the welfare of the farmers as well as enhancing their income.

XII.            Transforming India Lecture Series:As the government’s premier think-tank, NITI Aayog views knowledge building & transfer as the enabler of real transformation in States. To build knowledge systems for States and the Centre, NITI Aayog launched the ‘NITI Lectures: Transforming India’ series, with full support of the Prime Minister on 26^th August 2016. The lecture series is aimed at addressing the top policy making team of the Government of India, including members of the cabinet and several top layers of the bureaucracy. It aims is to bring cutting edge ideas in development policy to Indian policy makers and public, so as to promote the cause of transformation of India into a prosperous modern economy. The  Deputy Prime Minister of Singapore, Shri Tharman Shanmugaratnam, delivered the first lecture on the topic: India and the Global Economy. On November 16^th, 2016, Bill Gates, Co-Founder, Bill and Melinda Gates Foundation, delivered the second lecture in the series under the theme: 'Technology and Transformation'.

Narendra Modi speaks at 11th Civil Services Day: Be enablers instead of regulators, PM tells babus Here are the highlights of PM Modi's speech

Narendra Modi speaks at 11th Civil Services Day: Be enablers instead of regulators, PM tells babus

Here are the highlights of PM Modi's speech

Prime Minister Narendra Modi on Friday addressed the civil services officers on the occasion of 11th civil services day and asked to stop being regulators to start being enablers. The prime minister, in his speech, said that there is a need to bring a qualitative change in the functioning of civil services. ” Changing trends in the last 15-20 years have altered the dynamics. Competition can play a big role in bringing a qualitative change,” Modi said. PM Modi also asked the officers to start using social media for better usage Praising the use of social media to reach out to people, Modi said, “E-governance, M-governance, social media- these are good means to reach out to the people and for their benefits.

Here are the highlights of his speech:

* Earlier, role of the government, from healthcare to wanting to set up an industry, was very strong. Things are changing since 15 years: PM Modi

* People are now seeing alternatives. For example- it can be about a private airline or a private healthcare service: PM Narendra Modi

* Changing trends in the last 15-20 years have altered the dynamics. Competition can play a big role in bringing a qualitative change: PM Modi

* With changing times, a need may arise that we may have to change our working style. From regulator, we need to be an enabling entity: PM Modi

* With quantum jump in work must also come a qualitative change: PM on Civil Services Day

* Hierarchy remains an issue- this is something we inherited from colonial rulers and we did not leave that behind in Mussoorie: PM Modi to officers

* E-governance, M-governance, social media- these are good means to reach out to the people and for their benefits: PM Modi

* A spirit of ownership is essential. Let us believe that through this set up we can bring a positive change in people’s lives: Prime Minister Modi

* Take ideas seriously, even if from your junior most person. Learn to take ownership, PM Modi tells bureaucrats

* Excellence must go hand in hand with responsibility, says PM Modi

* I see officers, ‘busy, busy’ with their mobiles. So i banned mobiles in meetings, says Prime Minister Modi

* The push for reform comes from political leadership but the perform angle is determined by officers & Jan Bhagidari transforms: PM Modi

* Every policy of ours and its implementation has to be outcome centric: PM Modi

States of inequality Economic disparity among and within regions is on the rise. This growing divergence needs policy intervention

States of inequality

Economic disparity among and within regions is on the rise. This growing divergence needs policy intervention

It is believed that a rising tide lifts all boats; unfortunately, this is not true about India. Economic development has enhanced divergence rather than fostering convergence. Inter- and intra-regional disparity has accentuated. The recent Organisation for Economic Co-operation and Development (OECD) Economic Survey of India, Article IV Consultations of the International Monetary Fund and the Economic Survey, all conclude that spatial income inequality in India is not only large but increasing. The increasing income divergence amongst states is clearly reflected in the chart alongside which captures the trend of average per capita Net State Domestic Product (NSDP) for the top three and bottom three states and Gross Fixed Capital Formation (GFCF) from 1993-94 to 2013-14.

Further, intra-regional disparity to overall income inequality has also increased substantially. The OECD Economic Survey of India concludes that the “difference across households living in the same state” is the most important source of income inequality. Utilising district-level data, Das, Ghate and Robertson (2015) infer that intra-regional disparity in India is as important a component of spatial inequality as inter-state disparity. Their analysis suggests that inter-alia, factors like distance to the closest urban agglomeration, differences in urbanisation, electricity provisions and state-specific characteristics play a crucial role in explaining divergence across districts.

Illustration: C R Sasikumar

The makers of the Indian Constitution were aware of these inherent dangers. The mechanism of appointing a Finance Commission every five years was designed to address this issue. The Gadgil Formula implemented in the fourth Five Year Plan took due cognisance of the need for balanced regional development by assigning weights to crucial parameters of states like population, per capita income, special problems, to name a few, for determining horizontal devolution. The concept of Special Category States was introduced in 1969 (fifth Finance Commission) for providing special assistance to disadvantaged states with a low resource base, difficult terrain, low population density, inadequate infrastructure and non-viable state finances.

The Planning Commission also adopted an area-specific approach in its planning strategy and introduced multiple centrally sponsored programmes. The Tribal Development Programme, the Hill Area Development Programme, the Western Ghat Development Programme were initiated, catering to geographically homogeneous and backward regions. Regrettably, such area-specific approaches for growing divergences in development patterns have not been successful. Reducing regional inequalities remains a daunting politico-administrative challenge. A credible and holistic strategy could include the following ingredients.

First, persisting with the belief that smaller states improve governance quality. In the context of the reorganisation of states in 2000, comparing pre-reorganisation (1993-94 to 2000-01) and post-reorganisation (2001-02 to 2008-09) data reveals that the increase in growth rates for the newly formed states was in the range of 4-6 per cent post-reorganisation, much higher than the national increase of around 2 per cent. Asher and Novosad (2015), using satellite and survey data, conclude that increased autonomy and political representation lead to accountable governance and help promote development.

Even though onerous, we should consider reorganisation of unwieldy, unmanageable states having distinctly identifiable regions. Uttar Pradesh, even after carving out Uttarakhand, has several regions at varying levels of growth and socio-economic development. The abysmal state of the economic and social development of eastern UP necessitates a radical solution. Similarly, the Marathwada and Vidarbha regions are drastically behind western Maharashtra in terms of growth and development. According to the Annual Report 2011-12 of the Marathwada Development Board, of the total MSMEs, large industries and SEZs in Maharashtra, Marathwada has only 7 per cent, 11 per cent and 10 per cent, respectively. Economic viability and administrative efficacy, while maintaining the Union’s integrity, must become the overarching principle for reorganisation. While carving smaller states is no panacea, the improved governance quality and anecdotal evidence supports what Ambedkar had professed in his Thoughts on Linguistic States.

Second, re-inventing the role of Inter-State Council and Zonal Councils. The Inter-State Council, established in 1990 under the provisions of Article 263, is a permanent constitutional body headed by the prime minister while Zonal Councils are statutory bodies formed under the States Reorganisation Act, 1956. Although the meetings of these councils were held recently under the current political leadership, yet there has been a considerable hiatus between their meetings. While Inter-State Councils mostly deliberate on promoting centre-state relations and coordinating policy actions, the genesis of the five Zonal Councils was during secessionist and linguistic agitations in the first decade of Independence. The core objectives of the Zonal Councils pertain to national integration and arresting regionalism.

However, in the contemporary economic and political milieu, issues of growth, development and equity assume priority. In this light, restructuring the Zonal Councils to meet contemporary challenges, and re-energising Inter-State Councils could have positive multipliers. Re-conceptualising the mandate of the Inter-State Council in facilitating a comprehensive partnership for collective and balanced regional growth deserves priority. Placing the Inter-State Council under the aegis of the NITI Aayog would augur well as the prime minister is the chairman of both these institutions. With similar composition and mandates, the synergistic advantages from the cooperation of these two organisations would seek greater regional convergence.

Third, can exports become an engine of growth for the more laggard states? Backward states, especially in eastern India, have comparative factor advantage for labour-intensive industries like textiles and leather. Harnessing their comparative advantage for low-skill labour-intensive activity can create a viable export sector. Surmounting logistical challenges and competitive labour regulations would be central in creating new export hubs. While creating special economic zones in coastal India has obvious logistical advantages, mobilising the abundant labour supply coupled with skill inculcation makes the export-led approach an attractive policy for many laggard states. Export sectors attract capital, technology and improved managerial practices which could greatly improve their competitive efficiency.

Finally, inter-state competition in improving governance and the ease of doing business should be fostered. According to the Department of Industrial Policy and Promotion (DIPP), between April 2000 and December 2016, Maharashtra and the NCR alone accounted for 52 per cent of the total FDI equity inflows. Similarly, during 1990-91 and 2013-14, Maharashtra and Gujarat alone accounted for more than 30 per cent of Gross Fixed Capital Formation (GFCF), a proxy for investments in the country. Mundle et al (2016), while ranking the governance performance of 19 states, observed that five of the six best-performing states in 2001 were also the best performers in 2011.

This persistent stagnation needs rigorous action. Fostering competition amongst states through the Business Reform Action Plan, where progress in 2016 in achieving a national implementation rate of 48.93 per cent (compared to 32 per cent in 2015) is significant. But enticing private investment will need further action on simplifying regulatory architecture, reducing the onerousness of litigation and alternative dispute settlement mechanisms, and easing factors of production, particularly land and labour, where action rests with the state. This could also catalyse private investment and innovative public-private partnerships.

The mandate and role of the Niti Aayog should be redefined and enhanced to evolve models aimed at balanced regional development. It is axiomatic that the reticence of private investment in backward states can be somewhat overcome through enhanced public outlays. Given the constraints of fiscal space, seeking greater engagement of multilateral agencies, both traditional and non-traditional, like the World Bank, the Asian Development Bank, the New Development Bank as well as the Asian Infrastructure Investment Bank would be helpful. Special infrastructure programmes designed for the more backward states will have multiplier benefits. The growing divergence of states, with the exception of health parameters, needs policy-induced reversal. Growth begets development because, as Henry Ford once put it, “If everyone is moving forward together, then success takes care of itself”.

India’s initiative to save Mother Earth

India’s initiative to save Mother Earth

United Nations celebrates a special day to celebrate Mother Earth on 22^nd April. Launched in 1970 with 10000 thousand people, today it covers one billion people in 192 countries. The basic objective is to raise awareness about the obligation of human beings to protect Earth and share its resources with future generations.

The theme for 2017 is to create “environment and climate literacy” to empower the knowledge base of common people towards the issue and inspiring them towards actions to defend the Mother Earth.

According to IPCC (International Panel on Climate Change) India is most vulnerable to the impact of climate change adversely impacting the health, economic development and food security.

In order to address this challenge of climate change India has evolved a comprehensive plan ‘India’s Intended Nationally Determined Contribution (INDC): Working towards Climate Justice’.  This document addresses the issue holistically including the elements of adaptation, mitigation, finance, green technology and capacity building. While implementing these intended actions, it calls for the right of developing countries for an equitable carbon space to achieve sustainable development and eradication of poverty.

The formation of Rs 3500 million or US Dollar 56 million ‘National Adaptation Fund’ will initiate policies towards renewable energy through multiple initiatives to achieve the target of reducing carbon emissions by 33 to 35 percent by 2030.

The main focus is to revisit the National Missions under National Action for Climate Change (NAPCC) with additional missions on wind, health, water and redesigning missions on sustainable agriculture.

The adaptation strategy is directed towards sustainable use o land and water resources. The implementation of soil heath cards across the country, watershed and use of water efficient irrigation programme will pave way towards risk proofing agriculture. The coverage of agricultural insurance of crops though climate change disasters is another initiative that comes to the rescue of farmers.

The mitigation strategies involves generation of clean and green energy by increasing renewable energy capacity form 35 GW (Giga Watt) to 175 GW by 2022. In addition to the National Solar Mission that targets fivefold increase in solar power to 1000 GW, it also aims to develop smart power grids to enhance the efficiency of power transmission and distribution across the country. To cap the wastage of energy consumption a nationwide campaign for energy conservation is launched to save 10 per cent energy consumption.

While these are macro level policies to address the issue of climate change, the government of India has initiated micro projects that have direct benefits accruing to the poorest groups while contributing to saving energy.

Under the ministry of Renewable Energy, UJALA scheme is launched in which 22.66 crore LED bulbs are distributed that will save Rs 11776 crores while reducing carbon emission up to 24 Metric tons per year.

Similarly under the ministry of Petroleum free LPG connections are given to women holding BPL cards. The Prime Ministers Ujjwala Yojana has already reached 2 crore households and it aims to reach the target of 5 crores house holds by 2019 with an outlay of Rs 8000 crores.

This has direct impact on rural women empowering them by providing easy access to clean energy source that improves their health and reducing the pressure on forest resources as well as reducing the carbon emissions.

The Swaach Bharat Mission is another strategy under which there are initiatives to create energy form the waste in urban areas. Similarly recycling and reuse of waste water is another initiative 23277 millions litre of water per day in 816 sewage treatment plants across the country.  

Green India Mission is another initiative to reforest barren land with the annual target of increasing the forest quality and cover in 5 million hectares will sequester 100 million tons of carbon annually.

The traditional Indian culture emphasised the need for harmonious co existence between man and nature. With the concept of “Basudaiv Kutumbakam” all life forms on the Earth is considered as one family and reinforces the concept of interdependence. Before the advent of Mother Earth Day in the modern world, the Vedas and Upanishads considered Earth as our mother and human being as the children. Much before the arrival of climate change crises, our forefathers envisaged the concept of environmental sustainability and to become the trustees of Earth to be passed on to future generations.

It will be appropriate to recall the statement made by Prime Minister Narendra Modi while addressing the United Nations summit in which he said “We should forge a global public partnership to harness technology, innovation and finance to put affordable clean and renewable energy within the reach of all. Equally, we must look for changes in our lifestyles that would make us less dependent on energy and more sustainable in our consumption. It is equally critical to launch a global education programme that prepares our next generation to protect and conserve Mother Earth”.

Thus it is only through creation of environment and climate literacy that will result in global action of changing the life styles that leads to reduction in the carbon emission that we can save Mother Earth.