Monday, July 26, 2010

We're All (Still) Socialists in India

Though Indian politicians talk a lot about reform, they are good at spending tax payers money, mostly because they are socialists. Every political party in India should swear allegiance to socialism, according to the 42nd amendment to constitution.There are around 50 parties represented in the parliament, but people of India do not have much of a choice as there is no liberal political party. The petition filed by Sanjiv Agarwal is a case in point. The petition was withdrawn on the grounds that no political part has opposed the insertion of the word 'Socialism".Political parties should take up this cause.My article titled "We're All (Still) Socialists in India" was published in The Wall Street Journal on July 26th 2010.

India's politicians love to talk about "reform," but if the recent past is any indication, most of them like spending money more. There's the $22 billion annual bill for food and fertilizer subsidies; the billions spent every year on the rural employment guarantee scheme; plentiful government-subsidized loans; and on, and on. The lack of debate over the virtues of these wasteful policies is striking in the world's most vibrant democracy. A big reason is because all Indian politicians are—officially—socialists.

That's not a typo. During the height of Indira Gandhi's Emergency Rule in 1976, policy makers passed the 42nd Amendment to the Constitution, which added the words "socialist" and "secular" to the preamble. Then in 1989, the Representation of People Act, the law which governs elections and political parties, was amended to make it mandatory for all political parties seeking registration with the Election Commission to affirm not only the general constitution but also socialism. Since then all political parties have sworn to socialism without any hesitation, without bothering to define what it means.

These are more than just semantics. Political parties are plentiful in India, with around 50 parties represented in the national parliament, and hundreds of parties operating at state and local levels. Yet, the political ideals on offer are very limited, and there are no avowedly liberal political parties. The "socialist" pledge, as it turns out, has created a serious legal anomaly and a damaging precedent.

Look no further than the recent case of Sanjiv Agarwal, the head of the Good Governance India Foundation in Calcutta. In 2007, Mr. Agarwal, whose nongovernment organization fights for property rights and the rule of law, filed a public-interest petition to the Supreme Court questioning the validity of the 42nd Amendment and the relevant section of the Representation of People Act. The petition argued both provisions violated the basic premise of democracy and political freedom enshrined in the Constitution.

Two years later, the Election Commission filed a response and acknowledged that the 1989 law required all parties to affirm their loyalty to socialism. In other words, although the word "socialism" was included in the Constitution through the political and constitutional process, it cannot be opposed and removed by the very same process. The Government of India did not file a reply.

When the petition was first heard by the Supreme Court in January 2008, Mr. Agarwal's lawyer pointed out that the anomaly in the election law had been questioned in 1995 by the Swatantra Party Maharashtra, a small political party located in Maharashtra State. Unfortunately the Mumbai High Court still has not heard the petition—even though 15 years have passed since its filing.

Mr. Agarwal couldn't legally substantiate the details of the old case, and the judges on the bench observed that while it was a valid point, it was also an "academic" one, since no political party in the country had actually opposed it. So the petition was withdrawn on July 12.

The fight isn't over, however. The Supreme Court did not reject the petition outright. Instead, the three-judge bench implied the court would prefer to deal with it when a political party actually is aggrieved, or refused registration because of its refusal to affirm socialist beliefs. The Court's statement also implies there is merit in Mr. Agarwal's arguments.

As it should: India's founders debated the question of socialism at length in 1949. The chairman of the constitutional drafting committee, B.R. Ambedkar, said: "What should be the policy of the state, how society should be organized in its social and economic side are matters which must be decided by the people themselves according to time and circumstances. It cannot be laid down in the Constitution itself, because that is destroying democracy altogether."

Fixing India's foray into socialism will take time. None of the serious political parties engaged in the electoral fray in the past 20 years has objected to the socialism clause, including nominally conservative parties such as the Bharatiya Janata Party and Shiv Sena. All see great political benefits from large public-spending programs that cement political patronage, even if those policies ultimately create more dependence, higher unemployment and lower future economic growth.

Yet India is changing slowly but surely since the "big bang" economic reform of the early 1990s. Today, the economy is poised to enter into a 10% annual GDP growth phase. Foreign multinationals have purchased two of the biggest Indian pharmaceutical companies at record prices, and rather than raising fear, many Indians feel proud that Indian assets could fetch such high values in the global marketplace. The recent auction of third-generation telecommunication spectrum raised a phenomenal $20 billion.

All political parties need to take up this cause. If the political space is legitimately opened up, then the political agenda would have to change too—and then the electorate may inevitably follow. India's free-market liberals then might find their rightful place in the political mosaic of the country. Just as India's diversity has sustained her democracy, political diversity will only strengthen the foundation of the republic.

Wednesday, July 14, 2010

Land Titling: Empowering people, capitalizing assets

An interesting new law aimed at simplifying land titles and land records, has been proposed by the government. The draft of the Land Titling Bill 2010, is now on the website of the Department of Land Resources.

In the following article I look at the some of the problems in laws and regulations governing land, and assess the possible impact of the new proposal. I also suggest a few key points that might make this innovative law really transformative one. A version of this article was published in the Wall Street Journal Online, under the title "India lands in a mess", on July 13, 2010. Tthe proposed property-rights bill could have far-reaching, positive implications for the economy.

Bollywood star Amitabh Bachhan cannot buy a piece of farm land outside Mumbai, the city he made his home 40 years ago, because he has first to prove that he or his family are farmers in his home state of Uttar Pradesh. A businessman ended up paying twice for a piece of land in a Himalayan mountain village in Uttarakhand because he discovered he had originally bought it from someone who didn’t actually own the land. A man in Delhi sold his ancestral property without the consent of other members of the family.

These are not isolated instances, but a reflection of the dismal state of land laws and records in India today. As with many other economic dysfunctions here, blame politics: Since independence in 1947, policy makers have mounted a steady assault on property and land rights in the name of equitable distribution and protection of the poor.

Today, the labyrinth of bureaucracy makes it hard to realize property values, condemning landowners to poverty and making land artificially scarce. The system also breeds fraud: According to some estimates, 80% of cases in the lower judiciary are related to land disputes and fraud. The mafia, unscrupulous developers and their political patrons dominate the real-estate business.

Thankfully, democracy has struck deep roots in India, and citizens are beginning to grasp the symbiotic relationship between democracy and property ownership. Over the past decade, policy makers have been forced to address growing protests against land displacement and alienation. The Forest Rights Act in 2006 attempted to recognize the land rights of one of the most marginalized populations in the country—the 80 to 90 million indigenous tribal people who largely continue to live in the vicinity of forests.

While the implementation of this law has yet to gather momentum, another law has recently been proposed by the government to help give the people clearly defined land titles. The Ministry of Rural Development has recently drafted the “Land Titling Bill 2010” to encourage states to adapt similar legislation at the provincial level. The ministry has extended the deadline for public comments to August 31.

The draft Bill introduces title guarantee principles practiced in many parts of the world. It tries, for instance, to address the problem of presumed title. Under current law, when land is contested lawyers have to try to dig up the chain of past titles to prove ownership. Between the poor and corrupt land-record system and incredibly slow judicial process, this is a daunting task.

The Bill proposes a title guarantee system and indemnification. This means that a land holder granted conclusive title to his property by the State will have an indefeasible right over this property. If anyone contesting this title can come up with evidence to the contrary within a specified timeframe, the latter claimant would be compensated from a title guarantee fund for loss of his title, but the title would not be restored to him. The basic goal is to help clean up the land records and begin with a relatively clean slate.

While the goal is very laudable, the devil lies in the detail. The Bill seeks to digitize land records and proposes to complete the process in five years. Many states have already made significant progress in digitizing existing land records. But there is a significant difference between what is actually on the ground today, and what was on the old records. Rather than emphasizing the need to make the records reflect the reality on the ground, the Bill proposes to keep both paper and electronic records. This could easily open the door for further fraud.

Also, given there are estimated over 400 million individual properties, it would be impossible to document claims and clean up the records through the administrative machinery alone. It is imperative that people participate in this process actively, not just because of the volume, but also to legitimize the whole process.

Then there’s the problem of tackling corruption, which mostly surfaces in transaction costs like stamp duties and registration fees. State governments tend to view these levies as lucrative sources of revenue. But a number of expert committee reports over the past two decades have shown that abolishing these levies would not lead to any revenue loss. Under the current system, apart from rampant under valuation, there is a proliferation of transactions using power of attorneys, and camouflaging the sale as loan, thereby completely bypassing the tax net. Typically, in major cities, price of property is split with about 60% expected to be paid in cash.

The Bill also raises the problematic issue of property valuation. But valuation is function of zoning and land-use regulations. The same piece of land will have a very different value when it is classed as agriculture than if it is allowed to be used for housing, industry or other commercial purposes. Farmers in Singur were offered about three times the then prevalent agriculture land price for the land acquired by the West Bengal government for the Tata Motor’s showcase Nano car plant. But with the prospect of land being allowed to be converted from agriculture use, the price of land had shot up ten fold in the vicinity. No wonder that the land owners were agitated at the role of the state government as land broker.

According to a national survey in 2006, about 40% of Indian farmers would like to sell their land and move to more lucrative occupations, but can't find buyers because of archaic laws regarding farm land. Likewise, a survey this year found that about 40% of people in urban areas live in slums. Again restricted supply of land has meant that there is no supply of affordable housing and economic avenues for the poor.

Constitutionally, land is a state subject, and therefore political leadership is needed to have the states adopt such a progressive law in the provincial legislatures. There are quite a few examples of model laws at the national levels, which have been orphaned by the states, as in case of agriculture reforms.

India’s policy makers have clearly identified a critical area for reform. Poverty in India isn’t due to a lack of access to capital, but to people’s inability to realize the value of their most prized asset—land—and to put that money to its optimal use. The beauty of such reforms is that they do not require major financial commitment, only a political realization of the significance of recognizing what is already happening on the ground. The deliberations over the coming months could determine whether this legislation will transform India or merely remain a piece of paper that scores high on intention, but fails in practice.

Thursday, July 1, 2010

Fixing Delhi's Demonic Traffic

The Commonwealth Games is just a few months away and the transportation system in Delhi is in a big mess-whether it is the metro rail system or the public-sector bus system. Planners blame these problems on population growth and unlicensed private transportation. The blame , however, should be placed on the planners themselves. Restricting the entry of vehicles is not the solution.Entry barries should be eliminated and traffic police should be privatized. My article titled "Fixing Delhi's Demonic Traffic" was published in The Wall Street Journal on July 1st 2010.

The Commonwealth Games in New Delhi are just four months away, and residents of India's capital city are bracing for more traffic nightmares as players and guests from over 40 countries pour into town. The city already contends with crumbling public transportation and mind-numbing traffic jams. National and state governments have opened their wallets to meet the exponentially growing costs, arguing the spending will help realize the capital's long-term infrastructure needs.

This is the triumph of hope over experience, especially when it comes to the wisdom of the government's urban planners. Take Delhi's metro rail system, built over the past five years with the help of Japanese contractors. It is one of the rare projects that is being completed mostly on time, and within budget. Yet on the day a new section opens, demand always exceeds the metro's capacity, because of perpetual shortfall in coaches. Many admiring users have given up and resumed use of their own vehicles.

The public-sector bus system isn't much better. Delhi Transport Corp. reportedly makes more money idling buses than when it runs them. It is now acquiring a glittering fleet of modern vehicles, but the process has been slow, and no one knows how the fleet will be maintained. Privately licensed operators are mostly in the hands of small-time mafia bosses. Those buses make headlines more for their accidents and fatality rates than their service.

Then there are examples from the theater of the absurd. Take, for instance, a one-way flyover on a busy route that connects one of the highways to the international airport was recently inaugurated. Its opening led to such chaos that the authorities had to reverse the direction of traffic, with the explanation that the traffic pattern on that stretch of road had changed drastically in the two years the flyover was under construction.

This is by no means an isolated incident. Two years ago, a 20-kilometer stretch of highway connecting Delhi to Gurgaon, the fastest growing suburb to the south of the city, was expanded to eight lanes and opened with a 32-gate toll plaza. The day the road was inaugurated, the traffic flow exceeded the projection for 2014. Today, on a typical working day, it takes more time to queue and pay the toll than to drive through that stretch of highway.

Urban planners brush off these problems by blaming unrestrained population growth and an explosion in unlicensed private transportation. They focus on limiting the supply of vehicles. In a city of 15 million, there are about 10,000 permitted taxis, 50,000 three-wheeled automobiles and a few thousand cycle-rickshaws. Unofficially, there are around 38,000 taxis, 75,000 three-wheelers and 100,000 rickshaws, thanks to the high costs of running legal transportation. The vehicle density is around 10 per 100 people, which is high when compared to the rest of India, at one per 100 people.

But congestion on the road is not just a function of the number of vehicles, but also of the quality and amount of road space and the efficiency of road use. Delhi's streets are no more congested than any of the main streets in small towns across the country.

This misguided focus on the number of vehicles has meant that every transportation policy seeks to restrict the entry of vehicles. Consequently the supply of transportation falls chronically short of demand. There are layers of licenses and permits regulating the operation of private buses, taxis and automobiles, which apart from breeding inevitable corruption, perpetually restricts supply. What's more, taxes on gasoline, and vehicles are among the highest in the world, all aimed at reducing personal forms of transport. This has retarded the technological innovation and added to pollution and congestion.

So citizens turn to the private sector. Many Delhi residents have to bargain regularly for the fare with cab or auto drivers, bus conductors and other informal service providers. Thousands of vehicles ply Delhi each day, without authorization, to meet the demand, while contributing millions of rupees to the kitty of road transport officials and the traffic police, whom they have to pay to be allowed to operate.

There has been one small step in the right direction: A few months ago, the Delhi High Court, in a landmark judgment, nullified the license raj that had hobbled the cycle-rickshaw industry in the city. The vehicle, a human-powered bike attached to a wheeled chair, is a low-cost investment, providing employment to tens of thousands, and an accessible mode of transport for relatively short distances. By licensing its numbers to absurdly low levels, municipality officials, traffic police and the rickshaw mafia ruled the streets, depriving citizens of an affordable means of transport, and denying an honest, albeit hard, day's work to the riders.

The decision to liberalize the cycle-rickshaw trade should now be extended to all forms of public transportation. Even better, Delhi's authorities could ditch the idea of regulating tariffs for licenses altogether. Entry barriers should be eliminated, if not drastically reduced. The government could also privatize the traffic police, who are rewarded now for their numbers of bookings, rather than the quality of their work.

These moves would have several advantages. First, they would legalize existing informal service providers. Second, they would allow more organized operators to benefit from scale of operations. This may incentivize many individual operators to merge and compete for clients on the basis of price and quality of service. Third, they would improve the policing of the system, too.

These suggestions aren't as radical as they may seem. With the advent of private radio taxis two years ago, there has been a perceptible improvement in the service of many small and informal taxi operators. In fact, the 2,500-odd such taxis currently operating in Delhi have led to a driver shortage, providing a new economic opportunity to many aspiring workers.

The Commonwealth Games are the biggest event India has hosted in years. Rather than asking people to stay at home during the celebrations, or forcing those who can afford to leave town to do so, simple changes in traffic and transportation rules could help improve the quality of life for all of Delhi's residents. Now that would be a game worth playing for!