| Gurcharan
Das
Times of India Articles
Private
virtue, public vice December 17,
2006
In 1989, a much admired and powerful lady who
was raising funds for her NGO, asked me what
I did for a living. I told her that I worked
for a company. “Oh, but what do you really
do—I mean for society?” she said.
I became defensive and began to recount our
philanthropic activities in the districts where
our factories were located. ‘Is that all!’
thundered the eminence grise. I was hurt by
her dismissive attitude, and recently remembered
this incident when Sonia Gandhi reminded fawning
businessmen in the same imperious tone about
their corporate social responsibility (CSR).
CSR has become a buzz word these days, and one
newspaper even has a CSR reporter. But why is
it that something so worthy and high-minded
leaves me uneasy? I think it is because companies
have no business engaging in philanthropy and
businessmen should value more what they do.
“The social responsibility of business
is to make a profit,” famously said Milton
Friedman, the Nobel Prize winner who died last
month. He explained that in making a profit
a company creates thousands of jobs, both directly
and indirectly through suppliers, distributors
and retailers. It imparts valuable skills to
its employees. It pays crores in taxes. It improves
the lives of millions of satisfied customers
with its products and services. This is an enormous
service to society. If some shareholders get
rich on the way, so what? Companies should focus
single-mindedly on their competence, providing
goods and services better than their competitors,
and not get distracted by extraneous activity.
A company’s social responsibility is to
make profits legally, not to harm nature, and
uphold the highest standards of governance.
Yet, I intensely admire individuals who engage
in philanthropy. I was deeply moved by Warren
Buffet’s selfless gesture when he gave
away all his wealth to Bill Gates’ foundation.
I agree with Andrew Carnegie that to die rich
is to die disgraced. If it is immoral to spend
the company’s money, it is businessmen’s
duty to spend their own money on charity (from
after-tax profits). It is a theft against Reliance’s
shareholders if Reliance Industries builds a
hospital, but it is Mukesh Ambani’s duty
to do so. Hence, Tatas do their charity work
through their trusts, from dividends received
from Tata companies. CSR should thus be relabelled
ISR, Individual Social Responsibility, and each
of us ought to feel the need to give back.
This is fine in theory, but the reality is
that few Indians feel the philanthropic urge,
which emerges it seems at a later stage of capitalism.
In order that the few sources of present funding
don’t dry up, we cannot allow corporate
funding to cease. We can ensure its legitimacy
if companies fix rigorous criteria for giving.
Corporate philanthropy must enhance company
profits, strengthening the brand or promoting
goodwill in the community. For example, when
Citibank funds a college to train micro-finance
professionals, it enhances its brand.
Glib talk about CSR reflects our prejudice against
businessmen. Adam Smith wrote in his Theory
of Moral Sentiments that he didn’t much
care for those who spent their lives chasing
“baubles and trinkets”, but he was
“immensely grateful that such creatures
abounded for the whole of civilisation, and
the welfare of all societies depended on people’s
desire and ability to accumulate unneeded capital
and show off their wealth. Indeed, it …first
prompted men to cultivate the ground, to build
houses, to found cities and commonwealths and
to invent all the sciences and arts which ennoble
and embellish human life.”
Thali to
plough December 3, 2006
Last week’s Mittal-Walmart deal is symbolic
of an India which is changing quietly. Indians
now consume less cereals and more milk, vegetables
and fruit. In the past 20 years, per capita
consumption of vegetables has trebled in villages
and doubled in towns; milk and milk products
have doubled in urban and rural areas. The share
of high value foods has risen in India’s
agricultural output from 32 to 44 percent from
1983 to 2003. Cereal consumption has declined
even among those below the poverty line, according
to the economist, Ashok Gulati’s analysis.
While we have been agonising over cotton farmers’
suicides, India has become silently the world’s
second largest cotton producer, crossing the
United States. NCDEX has become the world’s
third largest agro-commodity exchange. The cotton
revolution was made possible by the much reviled
Bt cotton seed, which protects against bollworm,
the dreaded pest which used to destroy half
the crop. Misguided activists delayed its entry
into India by 5 years.
The farm, meanwhile, has been shrinking. It
is now 1.4 hectares--so small that it’s
difficult to make a living. The only viable
farming on small holdings is vegetables, poultry,
and high value crops. But growing these is riskier.
Hence, contract farming is a good idea. It transfers
the risk from farmers to companies. Farmers
lease their land; get employment; and a guaranteed
return. The contracting company invests in better
seeds, scientific practices, and raises productivity.
Studies show that contracted farmers earn 30
to 100 percent higher. Punjab Agro, the government’s
mediating company, has 160,000 acres under contract
with 25,000 farmers. Some worry that marginal
farmers will be left out, but curiously small
holdings can be highly competitive because the
family provides free labour.
In the long run, however, people will have
to leave the farm. Too many Indians (57%) are
trying to eke out a living from agriculture.
Peasants have faced this dilemma in all societies:
Is it better to starve on an unviable plot or
become the urban proletariat in Marx’s
words? Everywhere they have chosen the second
alternative. This is why I favour the SEZs.
With all their flaws, SEZs could create millions
of jobs for unemployed farm youth in construction
and other non-farm areas. I disagree with Sonia
Gandhi--farmers should sell their unviable plots
to SEZs in exchange for urban jobs. SEZs don’t
need tax breaks; they need less red tape. They
could be the tipping point for our industrial
revolution (unless bureaucrats again kill SEZs
at birth).
President Hu’s recent visit reminded
us that China’s reforms began by privatising
agriculture in 1978, and delivered even better
results than our green revolution. Not only
did agriculture boom, but their household responsibility
system generated spectacular growth of labour
intensive manufacturing in rural areas. Our
green revolution achieved food self-sufficiency
but didn’t make manufacturing linkages
because of the Licence Raj. Unlike our first
green revolution, the private sector will drive
changes in the rural economy this time. This
is the significance of the Mittal-Walmart deal.
Politicians, farmers, activists don’t
realise it, but Dalal Steet does. Hence, three
mutual funds, primarily with rural portfolios,
began in 2006. They comprehend that India could
soon be feeding the Middle East.
The
price of potatoes, November 19,
2006
I sometimes wonder why I pay Rs 10 per kilo
for potatoes when the farmer receives only Rs
3. My potatoes travel some distance, I realise,
from the farm to the mandi to my bania, and
each person in the chain must get his cut. Still,
the gap of Rs 7 seems excessive, especially
when the American farmer receives Rs 4 to 5.
This gap varies, of course, depending on the
commodity and the season, but studies by agricultural
economists show that farmers in the developed
countries do get a bigger share of the consumer
price because their distribution chain is shorter.
Reliance opened seven supermarkets in Hyderabad
last month and my friend bought potatoes there
for Rs 10 per kilo compared to Rs 18 at his
bania’s shop. Another friend who works
with an NGO in rural Andhra reported that farmers,
who had supplied potatoes to Reliance, reported
receiving higher than the mandi price. How could
Reliance pay a higher price to farmers and charge
a lower price to consumers? Simple--it had eliminated
middlemen in the chain. Thus, we should welcome
the entry of large retailers. They will bring
logistics efficiencies and competition between
them will lower consumer prices and raise farmers’
incomes. We shouldn’t wait too long to
open this sector to foreign retailers like Walmart
and Tesco lest Reliance become a monopoly.
A typical farmer harvests his crop, loads it
on his bullock cart, travels30 km to the mandi,
where he is forced to sell often at distress
prices. Once at the mandi, he cannot return
without disposing his produce. He needs the
money and the trader knows it. Had he known
the price before he left, he might have waited
a few days. Where E chaupals have arrived farmers
are happy because they get to know mandi prices
via the Internet. The national commodities exchange
(NCDEX) is setting up electronic tickers announcing
spot and future prices in local languages at
mandis and bus stands in some states. Eventually,
the mobile phone will be the farmer’s
best source of information. All these developments
make traders unhappy.
Since his crop is perishable, the farmer needs
a warehouse to enhance his staying power. NCDEX
is putting up a thousand cold storages with
world class grading facilities, but large retailers
will also bring air-conditioned warehouses and
trucks, and this will save India’s huge
post harvest losses, as high as 40% for some
crops. Banks ought to lend money to farmers
against warehouse receipts, but the Reserve
Bank refuses to allow them to hedge against
future prices. This is a pity for bank loans
would mitigate the farmer’s risk and improve
his holding power. In fact, banks should also
sell crop insurance. It is amazing that RBI
should view futures trading as speculation.
If the farmer knows the price of potatoes, he
might plant onions instead.
Old habits of the mind die slowly. When you
have been a stagnant, peasant agriculture for
hundreds of years, it is difficult to grasp
how Reliance, commodity exchanges, futures trading,
and contract farming will quietly bring a second
green revolution and liberate farmers from the
clutches of the old mandi system, which is at
the heart of rural political patronage. Activists
oppose the entry of global retailers like Walmart
on ideological grounds. Talk of farmer suicides
is cheap. Politician-traders on Agricultural
Marketing Committees play on these insecurities.
No wonder it takes so long to reform in a democracy.
Things that
matter November 5, 2006
Lant Pritchett wakes up each morning and worries
about the state of India’s government
schools. Formerly an economist at Harvard and
now with the World Bank, Pritchett is happy
that 93 % of India’s children are now
in school as the SRI survey shows. However,
digging deeper into the SRI data, Pritchett
finds that 53 % of all children in urban India
are in private schools. In some states the ratio
is much higher, but urban India overall has
amongst the highest levels of private primary
education in the world.
Chile privatised education in 1981, and after
25 years its private sector has achieved only
46.5 % share of enrolment. Even Holland, which
has always believed in giving choice between
private and public schools to its children as
a matter of state policy, has only got a private
school share of 68 %. This Dutch level has already
been exceeded in six states of India. Whereas
in Chile and Holland the government pays parents
to send their children to private schools, it
has happened accidentally in India because government
schools have failed, and even the poor are exiting
from them.
The de facto privatisation of schooling in
urban India is confirmed by the government’s
own District Information System for Education
website, which shows that 66.9% of children
in urban Maharashtra are in private schools,
66.3% in Tamilnadu, and 65.1% in U.P. to name
only three of India’s largest states.
This is supported by Samuel Paul’s studies
on people’s satisfaction with public services.
The states with the highest level of privatisation
give the lowest rating to government schools.
For example, only 1% of the parents in Punjab
are satisfied with teachers’ behaviour
in state schools.
There is nothing wrong with giving parents a
choice as Holland and Chile have done. If our
government were to give the money that it spends
on running schools to children in the form of
scholarships, competition for the scholarship
money would improve many government schools.
Today, the government—the centre and states
together--spends on the average Rs 4000 per
child per year on primary education. Headmasters
confirm that a child can get a decent education
for Rs 4000. Thus, money is not the problem,
and we ought to test this people friendly scholarship
scheme in a few cities. However, we cannot give
up on a million government schools. State schools
do work in other countries.
The Kremer-Murlidharan study shows that one
out of four teachers is absent from our state
primary schools and of those present one out
of two is not teaching. Thus, the heart of the
problem is teacher accountability. And this
failure is even more heartbreaking given the
exalted status of the teacher in our civilization
for whom inspiring young minds was his dharma.
Many NGOs are making heroic efforts to improve
the existing system, but given powerful teachers’
unions, it is an impossible task. Hence, Lance
Pritchett suggests that new teachers ought to
be hired into a new professional cadre which
is district based and offers incentives and
promotions for good performance. It would be
a Panchayati Raj institution and teachers would
be accountable locally to parents instead of
to bureaucrats at the state capital. The answer,
thus, is not private schools alone, but to liberate
government schools from the ‘anti-teacher’
grip of unions and babus. These are the things
that matter in the end; thus will the poor benefit
from our rising economy.
Saaf
Aangan Dreams
October 22, 2006
In the
late seventies I lived with my family in Mexico
City, where I noticed that our neighbours would
wash the foot path outside their house every
day. But we, being good Indians, swept our home,
washed our driveway but left the pavement to
the municipality. As a result, the walkway
outside our neighbours’ homes sparkled proudly
while ours remained dirty and sad. It didn’t
take long before we felt ashamed and followed
the good ways of our neighbours.
While we
were learning civic virtue in Mexico, a flight
lieutenant in the Indian Air Force, Madhu Sawant,
had the same idea. He asked himself, what if
each Indian took care of the little space outside
his home, office or shop? So, when he retired
he set up an NGO called “I Clean Bombay”. Redefining
the charming, wistful Hindi word, aangan,
to mean the space between one’s boundary wall
and the middle of the street, he created the
“Saaf Aangan Scheme”, which was formally adopted
in 2002 by Mumbai’s municipality. The scheme
allows an individual to lease the footpath outside
his home from the municipality for Rs 3 per
year, and makes him officially responsible for
keeping it free of garbage, hawkers, and squatters.
In 2005,
the NGO Council of Mumbai persuaded the municipality
to convert Saaf Aangan into enforceable Rules,
which provide a fine for littering of Rs 1000
on citizens and Rs 100 for house owners, and
also encouraged home owners to keep litter bins
on footpaths. In August 2006, the municipality
decided to upgrade Saaf Aangan rules into Bye-Laws
to cover hawkers, who are also responsible for
keeping the surrounding space around them clean.
There are 300 Nuisance Detectors to enforce
the fines. “Even a paanwala can apply to the
municipal ward office to lease the area around
his stall,” says Sawant.
Like many
Indians I despair over the filth in our public
spaces. But I am embarrassed to complain as
there are so many ills more pressing. In Saaf
Aangan, however, we may have the makings of
a big idea for our grimy towns. Its attraction
is that it doesn’t depend on the state but on
individual initiative. It also feeds on
self-interest rather than altruism because one
wants to return home to a clean doorstep. Any
group of individuals in any town in India can
make it happen. It helps to rope in a sensitive
municipal commissioner, but that is not necessary.
Before BMC got involved, 500 municipal schools
and 83 police colonies were practicing Saaf
Aangan. So were citizen in neighbourhoods like
N. Dutta Marg in Andheri (west), which is now
lined with trees and has flower beds along the
boundary walls of all its 35 residential complexes.
Once a few get going it doesn’t take long for
neighbours to emulate as we learned in Mexico
City.
Saaf Aangan
should be easier to implement in smaller towns
where the word spreads faster, enforcement is
easier, and there is greater sense of belonging.
Tanya Mahajan, a volunteer with Karmayog.org says, “Belonging and
ownership are an intrinsic part of this concept,
and schools are a good place to start”. So tomorrow,
when you sweep your house, why not absent-mindedly
sweep the pavement in front of your door. You
might create a revolution. But remember, man
is the only creature on this planet who is truly
dirty. And when we haven’t taken civic responsibility
for two thousand years, it won’t happen overnight.
India’s
mystifying rise,
October 8, 2006
There were
many smiling Indian faces last week. Our economy
again beat forecasts and grew 8.9% in the April-June
quarter. India’s economic rise bewilders Indians.
No one quite understands why this noisy and
chaotic democracy of a billion people has become
one of the world’s fastest growing economies.
This is the fourth year we are looking at around
8% growth, and this follows 22 years of very
respectable 6% annual growth. With 25 years
of high growth per capita income gains have been huge: from $1,178
in 1980 to $3,051 in 2005 (in ppp).
What puzzles
everyone is that India is not following any
of the proven paths to success. Compared to
the classic Asian strategy—exporting labour-intensive,
low-priced manufactured goods to the West—India’s
economy is driven more by consumption than investment,
domestic markets more than exports, services
more than industry, and high-tech more than
low-skilled manufacturing.
With consumption
accounting for two thirds of GDP, ours is a
people friendly model; hence, inequality has
grown much less. Our Gini index is 33, compared
to 41 for the United States, 45 for China, and
59 for Brazil. (In a perfectly equal society
Gini is zero.) Our domestic orientation has
meant that our economy is far more insulated
from global downturns, and is less volatile.
More importantly, thirty to forty percent of
our GDP growth is due to rising productivity
rather than mere increases in capital and labour.
Ironically, while high end, capital intensive
manufacturing is succeeding, we have failed
to create a broad based industrial revolution
based on low end, labour intensive manufacturing.
Hence, we are not creating enough jobs. This
is a real worry--how will we move our vast army
of people from the rural to urban areas?
Even more
perplexing is that rather than rising with the
help of the state, India appears to be rising
despite the state. The entrepreneur is clearly
at the centre of our success story. We have
highly competitive private companies now, a
booming stock market, and a modern, well-disciplined
financial sector. Competitiveness runs deep.
More than hundred companies have a market cap
of over a billion dollars. Foreign institutions
have invested in over 1000 Indian companies
via the stock market. Of 500 Fortune companies
125 now have R and D bases in India, and 380
have outsourced software development to India.
Our economy
may baffle us but we are agreed on one thing.
India is succeeding because the state is gradually
stepping out of the way. The pace of reform
is frustratingly slow, but incredible as it
seems, every succeeding government after 1991
has persisted in reforming. And even slow reforms
add up. Yet, the state has not lived to its
side of the 1991 bargain. It hasn’t built enough
roads; nor given us uninterrupted power and
water. Government schools and health centres
are rotten. The police are corrupt. In short,
we don’t get the services that citizens in other
countries take for granted. The Indian state
is so riddled with perverse incentives that
accountability is impossible. The tragedy is
that there are so many in this government, supported
by Left allies, who want to bring back state
control and kill our growth. One of them is
RBI which is itching to raise interest rates.
I sympathise with Chidambaram’s poignant plea
to these growth killers—“give us some political
space to reform” so that the UPA might take
some minimal credit for this great achievement.
Lalu Prasad is
like Reagan (24 September 2006)
Train journeys have increasingly become a part
of my life. My ancient mother had been ailing
in an ashram on the banks of the Beas River
in Punjab, and I would try to visit her as often
as I could. But she was 91 and age finally caught
up with her. She passed away one night after
living a life that I expect was better than
that of most of my countrymen.
Visiting her meant lots of journeys and before
I knew it I was addicted to the railway. I can
now make a reservation sitting at home on my
computer, pay with a credit card, and print
my own e-ticket. If I don’t have a printer
they deliver it in 24 hours. It is quite wonderful
when something outstanding emerges from our
public sector. Soon, I will be able to track
my train’s progress on my computer or
on a screen at the railway station via a satellite
system.
In the early days of the Internet I predicted
that computers would only take off in India
when computer prices dropped to Rs 10,000 and
when you could buy a railway ticket on the Net.
Well, both have happened! And so, a revolution
is underway and it is likely to be more profound
than the mobile phone. The minister of HRD is,
of course, oblivious of this because he is too
busy dividing Indians. He doesn’t realise
that India’s real divide is not caste
but the English language and computers. Instead
of bridging this divide and empowering young
Indians he is on his casteist power trip.
The electronic ticket has left an army of reservation
clerks unhappy. My friend used to complain that
he couldn’t get a ticket on the Tamil
Nadu Express during the holidays without paying
a bribe of Rs 500 per ticket, which also explains
why the Railway unions have opposed e-tickets
for five years. But e-tickets are only a small
part of a genuine renaissance in the Indian
Railways. The bigger story is in freight. In
the past two years Railways didn’t mindlessly
raise freight charges as in the past. When oil
prices rose they became suddenly competitive
with trucks. They also allowed more load to
be carried in wagons, which hurt another mafia
of railway employees. The biggest change, however,
is a modern mindset that is resulting in all
sorts of public-private partnerships and in
efficiencies which have transformed the finances
of this behemoth. The private sector is now
investing in its own wagons, readying to launch
container trains, building new lines to ports
and freight terminals.
Do we give the minister, Lalu Prasad, credit
for this transformation? He took over when the
Railways were tottering towards bankruptcy,
and if they had sunk we would have blamed him
for “Biharing the railways”. So,
we should give him credit for their revival.
Lalu’s success lies not in what he did,
but what he did not do. He surrounded himself
with good people—Sudhir Kumar is one of
them—and he left them alone. This was
also Ronald Reagan’s secret of success.
Many great managers have led from the back.
The Indian Railways sell 4.8 billion tickets
a year. This works out to 4.4 journeys per person.
We are thus a nation on the move. When Indians
are unhappy, they just pack up and go. Caste
ties loosen when you move, and this is our great
safety valve against regional inequality. Believe
it or not, even Bihar will catch up one day.
Don’t
despair over integrity September
10, 2006
One ought
to read a great book twice, at least. When I
first read Leo Tolstoy’s War and Peace
I was too young. I was only interested in the
plot and the relationships between Natasha,
Andrei, and Pierre. When I read it again in
my forties, I was deeply moved by its moral
concerns. I realised that the novel is really
about the way we deceive ourselves, how we are
false to others, how we oppress fellow human
beings, and how we’re deeply unjust in our day
to day lives. Most of this moral blindness seems
man-made and avoidable. It makes one wonder
if this is an intractable human condition, or
can we change it?
It seems
to me that ordinary human lives should not have
to be so cruel and humiliating. Is it not possible
to be more honest, fair, and kind in our relationships?
Some of our misery is the result of the way
the state treats us. Can we not reduce at least
some of the grief that public officials inflict
on us? It is in pursuit of these questions that
I began to write this column more than ten years
ago. The same questions sent me to the Mahabharata,
and I tried to find answers in the epic’s elusive
concept of dharma. I have concluded that we
can reform our institutions, and this
can change the morals and character of
our people and deliver greater happiness to
our society.
We are
hopelessly addicted to the belief that corruption
in India is caused by the crookedness of Indians.
This is just not true. The truth is that India
has far more red tape than other countries;
red tape leads to corruption and distorts a
people’s character. According to the World Bank’s
“Doing Business” database, it takes 89 days
to start a small business in India while it
takes two days in Australia or Canada. There
are more entry procedures in India; each procedure
is a point of contact with an official; each
contact is an opportunity to extract a bribe.
Empirical studies show that burdensome entry
regulations do not improve the quality of products,
make work safer, or reduce pollution. They only
hold back investment or force people into the
informal economy. Hence, the Copenhagen Consensus
of expert economists concluded in 2004 that
easing start-up rules is more important for
development than investing in infrastructure
or health care.
In India
it also takes longer to register a property,
enforce a contract, and close a business. Indian
managers spend more time on regulatory issues
than managers in other countries. Thus, India
ranks low among the 145 countries studied by
the World Bank in the ease of doing business.
Fortunately, reforms can quickly change country
rankings. In 2005, 58 out of 145 countries cut
red tape and simplified their regulations in
some way. India was one of these—it improved
its credit markets. Although it has been moving
up since 1991, India remains a hostile business
environment.
Civilized
societies are less corrupt not because their
character is superior but because their institutions
are better at aligning the incentives of their
citizens. There is nothing wrong in the character
of Indians. The same Indians behave differently
when they cross the immigration line at Heathrow
airport. So, let us not despair about our integrity.
Let’s focus on reforming our institutions, cutting
red tape, and become a good place to do business.
Our moral character will follow quickly. And
yes, do read War and Peace, again.
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during the year 2006
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