I went to India to visit friends, and ended up with a new perspective on life, society, history, and humanity. It was my first time in South Asia, and what I knew about India was limited to superficial topics like Gandhi’s non-violence and the large population.

I lived with my friend and her family in Chennai. I spent early mornings with her grandmother since we were the only two awake. Our discussions were thought-provoking and inspiring. We started by discussing the things I knew before I came to India: dowry and the caste system, poverty and the booming economy. Then we moved on to the larger issues.

Each morning we woke under the fans to the sounds of birds squealing, even in the city. The echo of honking horns was distant enough to not be noticed. We shared The Hindu daily paper, the grandmother did the crossword, Meenakshi (who worked for my friend’s family) served us tea and coffee and made the white-sand design in front of the door, sweeping the patios with a stick broom. At 8 a.m. breakfast was served – always something hot with spices like curry and patkis.

Always there was tea. Boiled water and milk with sugar. Always half a cup. Even on the plane when I paid 50 rupees for my tea, it was half a cup (maybe this was due to turbulence, nonetheless, it seemed a pattern).

East vs West

The grandmother explained Hinduism– the gods and the values. I was particularly fascinated by the contrast with the West, with the ideas I was raised with: go after your dreams; you can accomplish anything if you work hard enough; this is the one life you have; be yourself. In Hinduism, the grandmother explained, there is no concept of the self. Here in India, she said, time is circular. For the Westerner, time is linear and they push forward towards a certain end. Here, there is a sense of the vastness of life, of eternity. The poets understand this, she said.

The many contrasts with the West struck me throughout my journey.  On the plane connecting through Dubai to Chennai, I was the only white person on board, and there were only two other women – both traveling with families. The men in India generally ignored me, except occasionally struck up a polite conversation and mentioned their relatives in the U.S. Most asked if I was coming to study. Clothing is more conservative for women, almost all the women cover their shoulders and wear saris, street traffic is diverse and unpredictable, and there is a pervasive sense of history and tradition alive and well throughout the nation.

Culture & Politics

At meal times, the family had impassioned debates about modern Indian politics. I lived with three generations: my flatmate from Fletcher, her mother, and the grandmother. The mother calls the grandmother by her first name, per the grandmother’s progressive request. The debates at this time often centered on Anna Hazare and the anti-corruption movement – most people just follow him without knowing what he really stands for, and, are his demands even rational? We discussed the corruption in politics and law enforcement.

The discussion of marriage would come up. The mother wishes the daughter to marry soon, tries to introduce her to worthy Indian men. The mother adheres religiously to the Hindu horoscope. The horoscopes of the boy and girl must match, otherwise the union cannot occur. The daughter argued with cases that prove this untrue. The mother explained to me that in India often a marriage to an uncle or cousin is preferred, and at this another debate erupted with the daughter over the propriety of this practice. Just one household in India, so much debate and discussion. No wonder that the country is rolling forward.

Economy

Everywhere I went throughout India, I was met with fervent activity. You can feel the growth, you can sense the force with which individuals and the country as a whole are hurtling forward into their own futures, searching opportunities, selling, bargaining, pursuing education and advancement. My friend lamented that for every job you apply to, there are equally-qualified Indians you must compete with. The cities have a sense of potential and forward motion. It’s something that you don’t feel in the US anymore. The cities are growing, everyone is on their way somewhere, millions of motorbikes mix with cars, buses, small trucks and bicycles. Each strata of the economy is moving.

Media & Social Movements

During my stay, I was also met with Anna Hazare protests everywhere I went. From an auto rickshaw in Bangalore, along the rural roads outside Agra, to thousands amassing, chanting happily, around India Gate in Delhi. Every day the front page gave the latest updates, outlined the governments’ missteps, rallied the cause. The TV news headline asked, “Are you with Anna?”  The news in India is roundly criticized for being sensationalist. I enjoyed the change from my Financial Times and NPR, and relished the provocative news media that seemed to be full of analysis and critique. At night we watched the trivia show, the one featured on Slumdog Millionaire, and the daughter and mother competed to yell out the answers first; they were always correct.

Daily Life

My friends’ family might be considered middle class. Her mother is a public servant, the head of an auditing division for the government. She has a driver and a servant, like most upper class Indians. Our meals were all cooked and cleared by Meenakshi, the floors were cleaned, the outdoors swept, the laundry done. As an American, it felt like an unusual situation. Our legacy of slavery means we are raised with such antipathy toward servitude that it is an adjustment for me to get used to a person serving a family wholly, catering to their every whim. Upon reflection, though, I realized that Americans do this too – just not in the homes I was raised in. And in a country of such disparity, it is only logical that those with education and money will provide employment for those without.

The Value of Life

On my visit I was spared witnessing the begging and poverty that reins in the notorious slums. One image burned into my mind, however, is that of a one-legged man – like a pole with two arms – hopping between cars in Delhi, asking for change. I was slightly aghast, but my friend seems hardly to notice. “He’s obviously on drugs,” he noted.

There is a greater sense in India of kind of a predetermined destiny – you are born into a place in life, and that is your lot. This life, after all, is only temporary, and we each of us become a part of the greater universe when we pass along, or our soul returns into another body, to live life anew. Along with the sense of the cycles of life, came a shocking (for an American) lack of respect for life. Maybe this is cultural; maybe due to the extensive poverty; maybe due to the fact that a country with over 1 billion people no longer values each one. My bus driver on a two-day tour through Jaipur and Agra sped recklessly, clashed and raced with other drivers angrily, oblivious to the risk of 42 lives that were in his hands. Three days later, on the front page of the Hindustan Times, a small paragraph related that 10 people died on a bus when another driver, after a bout of road rage, doused the bus in oil and set it aflame. My friend doesn’t bat an eye. This kind of thing is so common, she said.

This contrasted starkly in my mind with the respect paid to animals associated with religious practices – cows and many living beings – which are greatly respected and not killed when it can be avoided.

Lessons

As I prepared to leave behind my first experience in India, I was most impacted by the dualism of a country: rich and poor, and the powerful mix of the traditional with the modern. Democracy is loved, but the people struggle to counter the now endemic corruption in their politics and police. Dowries are now illegal, but if a girl dies within 7 years of her marriage, it is presumed to be a dowry death and the in-laws are presumed guilty unless proven innocent. Untouchability is illegal and caste system frowned upon, but the reservation system for universities reserves room for certain castes. It is an affordable country for a foreigner, but inflation is on the rise and prices especially in booming cities have been skyrocketing.

Sadh, one of the many Indian gurus, says that in your life, if you don’t do what you can’t do, there is no problem but if you don’t do what you can do, that is a tragedy. Spiritual leadership is prominent here; even the most modern and logical have a guru that they follow. From India, for now, what I learn that I can do is to place a higher value on spirituality, tradition and history, and to continue to develop intellectually and find peace amidst the craziness of the world. India made me realize that in contrast to the pressures I feel in America, for now, I don’t want to seek to have an impact on the world, as we are often urged in our American education. Instead, I have realized that I still need the world to have an impact on me.

There is so much that a Westerner can gain from the more ancient eastern cultures and values, and so many fascinating contrasts to watch evolve. This history is full of exotic stories of kingdoms, palaces, astronomers, the birth of religions, and the modern India is still fully immersed in that history, amidst growing economy and leading fields of technology, innovation, and ­­communication. There is so much more to be learned about life and the self in India than I ever feel in the US. I hope to return for a longer period of time to do more learning and growing, and for many more conversations over half cups of tea.

The biggest democracy in the world is poised to become much bigger in the coming decades. India’s population is projected to increase from 1.2 billion today to about 1.6 billion in 2050, with the number of working age individuals alone expected to swell from 781 million to about 1 billion within the next twenty years. While emerging market investors see these figures as indications of India’s astonishing potential, the possibility of a demographic explosion is putting enormous pressure on lawmakers to develop an economic model that can withstand unprecedented demographic challenges.

Since the inception of economic reforms in 1991, the Indian government has taken a cautious approach to the economy. Demonstrating its affinity for a stable macroeconomic environment, the Reserve Bank of India has maintained meticulous controls on inward and outward capital flows, with the intention to keep inflation tolerable for the country’s growing middle class (the current episode notwithstanding). Restrictions on capital flows have perpetuated macroeconomic tranquility, but impediments to foreign investment have prevented India from fully achieving its economic potential.

While India’s economic model has created astonishing prosperity, analysts are growing increasingly doubtful that India can continue to grow so rapidly without modifying its economic model. One of the most profound consequences of India’s resistance to foreign participation in the economy and financial system is that India has not developed as strong a manufacturing sector as other emerging markets, such as China and Brazil. India’s manufacturing sector contributes a paltry 27 percent to annual output and accounts for only 19 percent of employment.

The government is well aware of the need to expand the manufacturing sector. Providing labor-intensive jobs is essential to reduce poverty and reduce India’s dependence on imports. In early June, Prime Minister Manmohan Singh unveiled an ambitious program to increase the share of output contributed by manufacturing from 16 percent to 25 percent. Four months earlier, Finance Minister Pranab Mukherjee emphasized that India needed a stronger manufacturing sector. “For sustained growth of GDP and productive employment for younger generations, it is imperative that the growth in [the] manufacturing sector picks up,” Mukherjee said.

The push for a stronger manufacturing sector is an admirable step forward, but it cannot be the only modification India incorporates to its economic strategy. Foreign investment should become the central pillar of India’s new economic strategy. Realizing the transformative impact foreign capital can have on the economy, financial system, and the legal framework, India must move beyond promoting investment, and adopt a new national economic development strategy giving foreign investment the central attention it deserves.

Bringing a new economic strategy into being will not be easy, but it is necessary to ensure a prosperous economic future. Reform will require a courageous plan featuring ambitious changes to India’s legislative framework and institutional landscape. A challenging political environment is no excuse for complacency when the stakes are so high. The challenges Indian progressives have to overcome are considerable, but not insurmountable.

Moreover, the need to act is growing increasingly imminent. Goldman Sachs estimates that India will require $1.7 trillion in infrastructure investments in the coming decade, and, in spite of its glimmering IT metropolises, India is home to more impoverished people than the entire continent of Africa. Indian lawmakers should take pride in having produced rapid economic growth for more than two decades, but significant challenges lie ahead. It is hardly time to celebrate India’s achievements.

What reforms need to be implemented to maintain a strong economy? The most obvious area for improvement is labor legislation. Laws such as the Industrial Disputes Act of 1947 and the Factories Act of 1948, not to mention dozens of subordinated regulations, are vestiges of pre-reform India. They are inconsistent with the new Indian economy, and intolerable if India wishes to create balanced and sustainable prosperity. Bringing labor regulations up to speed with the rest of the system is an essential step to encourage investment in job-creating industries.

Less obvious but equally important is the need to liberalize restrictions on debt inflows. While India’s regulatory authorities have welcomed foreign investors to participate in domestic equity markets, foreigners interested in contributing capital to infrastructure projects (mainly through debt) are subject to extensive restrictions. Because cash flows from infrastructure investments accrue over a long period of time, such restrictions have limited infrastructure development at a time when Indian competitiveness depends in large part on stronger infrastructure. Liberalizing restrictions on debt inflows is another important step to unlock the potential of foreign investment for the Indian economy.

Higher levels of foreign investment could also lead to a stronger regulatory system. When businesses become entrenched in foreign economies, foreign governments invest in their success through technical assistance programs. For India, like other emerging market economies, such investments would provide technical assistance and capacity-building programs to bring the regulations and institutions governing commercial activity in-line with international best practices. Encouraging foreign investment is the surest method to attract technical assistance from advanced economies.

How can lawmakers implement this new economic strategy, given all the obstacles embedded in the Indian political system? A strategic repositioning of this sort is far too important to be reduced to a single political gambit and needs, instead, to be implemented over time. An invigorated Parliament is one of India’s most valuable traits – but, as in all democracies, it has a tendency to dilute (and sometimes destroy) plans that are too ambitious.

To keep these ideas alive, the Ministry of Finance, in partnership with think tanks from India, the United States, and Europe, needs to develop a roadmap for foreign investment in India featuring the reforms outlined above and open to continuous improvement. Such a roadmap should be endorsed by India’s development partners, honed over time, and implemented whenever political conditions allow. Bringing a new vision for the Indian economy to life will require persistence and continuous attention from everyone – politicians, intellectuals, and citizens – committed to ensuring strong economic growth going forward.

A new economic strategy based on foreign investment is essential for India to maximize its demographic dividend. A growing population will demand more jobs, better infrastructure, and a modern regulatory framework. Foreign investment can play an important role in promoting all three, so long as Indian lawmakers set aside their reservations and finally start thinking big.

In the beginning was the Word: The Genesis of “Microfinance”

Microfinance, the love child of social engineering and financial strategy, has grown from an avant garde experiment to a buzz word over the last forty years.

While several claims are now made to its birth, it is widely acknowledged that the approach was pioneered by Mohammed Yunus, now known globally as the founder of the Grameen Bank, in 1976 with his first loan of USD 27 to 42 women in a Bangladeshi village. Since then, microfinance has exploded across the world as a scalable model of offering financial services to the poor.

And the light shineth in darkness: So what is Microfinance, exactly?

Microfinance essentially involves advancing financial services (predominantly credit) to the working poor. The loans are of small denominations, and usually made towards income generating purposes to those who are unable to secure loans from mainstream banking institutions. A key point to note is that these loans are normally advanced without any collateral, and to groups of borrowers. In the absence of collateral, it is social pressure that is used to ensure repayment. This has also, till date, been one of the key successes of microfinance – across jurisdictions, repayments have been consistently high with a global average of 97% (See the Microfinance Information eXchange’s website).

With the growth of microfinance from fringe effort to a mainstream financial strategy, there has been a diversification of the models used by various microfinance institutions (MFIs). Yunus’ initial vision saw microcredit as the lending of loans to poor women for income generating purposes. The emphasis is on poverty alleviation and agency building, and the banks forming the network are owned by the borrowers i.e. made up of their deposits, with all profit being funnelled back into the system. The sector has since seen the rise of commercialized for-profit MFIs, twinning profit and service motives with investments from capital markets and private investors seeking returns. While several moral questions have been raised about the ethics of profiting from the poor, until recently the real world success of these MFIs effectively silenced their critics, or at the very least, muted their disapproval.

I am not the Christ: India, Microfinance, and the Eruption of a Crisis

The growth of microfinance in India in the last ten years has been prodigious. Between 31 March 2007 and 31 March 2010, the number of outstanding loan accounts i.e. borrowers serviced by MFIs is reported to have increased from 10.04 million to 26.7 million and outstanding loans from about Rs. 3800 crores to Rs. 18,344 crores (See “The Report of the Sub-Committee of the Central Board of Directors of Reserve Bank of India to Study Issues and Concerns in the MFI Sector” (the Malegam Committee Report), Reserve Bank of India; available here).

Classified as “NBFCs” for the purposes of regulation by the RBI, MFIs qualify for priority sector lending from mainstream banking institutions i.e. the requirement that at least 40% of Bank funds be lent to worthy “priority sector” borrowers. In addition, private donors also contribute to fund MFIs. While, interest rates that appear high at first glance (between 28% to 32% typically), they factor in branch costs, the fact that MFI officers service the loans at the borrowers’ door step, and the cost of financing. Indian MFIs ironically, are even recognized to have the lowest rates of microfinance globally (See the Intellecap Paper, available here). The State of Andhra Pradesh (AP) has been the focal point for this growth, home to headlining MFIs like SKS Microfinance (SKS), Spandana Spoorthy and BASIX, with more than 12 million borrowers being added between 2005 and 2008 in the state alone. The fever pitch of expansion reached its climax, for some, when SKS went public on 28 July 2010, backed by Private Equity investors including George Soros and Sequoia Capital, raising USD 358 million. Hotly debated, Yunus and Akula (the founder of SKS) faced off in an iconic conversation, at the Clinton Global Initiative in September 2010, on microfinance IPOs, and “profiting from the poor” (available here). In hindsight, the timing of the debate was morbidly poetic.

Between September and October 2010, the media in AP had boiled over with the public outrage at a spate of suicides – reports of the actual number of deaths ranging between 20 and 80. The story of Prabhakar, a fruit seller, who hung himself after failing two weekly repayments, and being struck by an illness which stopped him from selling his remaining stock, hit the headlines. Other stories of borrowers being harassed by MFIs for repayment mushroomed in the media. By 15 October 2010, the AP government had passed an ordinance severely restricting the operation of MFIS, arrests of MFI employees had been made and the borrower defaults on outstanding loans began to have a domino effect. The world of microfinance watched in disbelief.

Art thou that Prophet? No! – A Post-mortem of the Tragedy

An outside observer may be forgiven for surmising that India has only recently woken up to the microfinance paradigm. However, India’s microfinance story goes back several decades with the Self Help Group (SHG) strategy.  Backed by the Reserve Bank of India (RBI) and the National Bank for Agriculture and Rural Development (NABARD), the programmes began around 1990, involving groups of 15-20 women developing credit and savings discipline, operating joint bank accounts and accessing loans. The long term aim of the programme was to help the women to build credit histories and ultimately access financial services individually. However, the model has not gained the momentum expected, and the phenomenal growth in the sector was largely kick-started by the entry of the “commercialized” MFIs using their more streamlined model, with smaller borrower Joint Liability Groups (JLGs), door-step collection and reduced bureaucracy.

The can of worms that had been opened by the tragedy in AP showed a more complex picture of the tension between advocates of the SHG model and the newer MFIS. Intellecap’s incisive white paper titled “Indian Microfinance Crisis of 2010: Turf War or a Battle of Intentions” (the Intellecap Paper, available here) provides this telling analogy, before launching into quality analysis of the situation:

“If we may be permitted a whimsical moment, the Indian microfinance story offers an irresistible parallel to a familiar Bollywood plot: in the Indian microfinance potboiler, the SHG model is the elder brother in an Indian joint family while the MFIs play the part of an aggressive younger brother. The elder brother struggles to uphold tradition and retain his leadership position, while the maverick younger brother tries to break free (using new financial and technology tools), often overenthusiastically, and sometimes recklessly, in pursuit of the same goals.”

Reports that several of the suicides involved individuals who also had loans outstanding with SHGs, and traditional money lenders emerged. In to the mix were thrown politicians with sympathies aligned with various groups, and hostility between state and MFI employees. The waters muddied quickly.

What sayest thou of thyself?: The Malegam Committee Report

In January, the committee headed by Y. H. Malegam released its report – a comprehensive review of sector commissioned by the RBI as the primary regulatory authority for banking and financial institutions.

Key recommendations of the report include the creation of a separate category of “NBFC-MFIs”, with a prohibition on entities not falling within the definition from lending to the poor. Proactively, the report also rejects the need for state governments to regulate MFIs, so as to avoid a conflict with the authority of the RBI. Regulation on interest rates has been recommended, with “margin caps” i.e. restricting the margin that can be built in to their interest rates by MFIs to recover costs and factor in profit. Restrictions on multiple-lending to borrowers with existing loans, penalizing of coercive recovery methods and increased corporate governance are called for.

The most controversial parts of the report come from recommendations that set down thresholds to apply on the ground. MFIs are required to have a net worth of Rs. 15 crores (up from the Rs. 2 crore limit presently). Loans can only be advanced to borrowers with incomes below Rs. 50,000 per annum. The maximum amount of loans themselves must be Rs. 25,000. Crucially, the report reviewed the Andhra Pradesh Micro Finance Institutions (Regulation of Money Lending) Act passed on 14 December 2010 and called for its repeal on the basis that an independent regulator free from political pressure is best placed to regulate these entities.

What sayest thou of thyself? I am the voice of one crying in the wilderness: Finding the way, Post-crisis

1 April 2011 is the deadline set for the acceptance of the recommendations of the Malegam Committee. The RBI is currently in consultation with stakeholders on various parts of the report, but it has announced last week, that the cap on interest rates at 24% will apply from 1 April 2011. Meanwhile, the clouds of a storm are gathering in AP, where the state government refuses to repeal the law in force, stating that under List II of the Constitution, it has the preeminent authority to legislate on the matter. In the face of the tangle of regulation, SKS has recently stated that it may consider stopping operations in AP in the current scenario where new lending is very limited, and defaults have become de rigueur.

Microfinance continues to work around the world positively as an agent to bring change, for financial inclusion, and as a means to help the poor out of poverty. However, the events of the last few months have brought to light the failure to regulate on the part of the Indian authorities, and self-regulate by certain MFIs until tragedy struck. The next few weeks therefore are definitive in terms of setting the new regulatory landscape for microfinance in India, after an agonizing six months. The choice that lies ahead is between using this as a cathartic moment to transcend failings, or throw the baby out with the bath water in a knee jerk reaction.

In the midst of what is happening today, however, I ponder about a few issues that occur to me. I offer a few thoughts about hoisting our national flag without taking sides. Subject to maintaining the dignity of the flag, every citizen of India has a right to hoist the national flag in any part of the country and any time of the year. The Supreme Court has also held that it is a fundamental right of a citizen under Article 19(1)(a) of the Constitution of India, being an expression and manifestation of his/her allegiance and feelings and sentiments of pride for the nation, subject to reasonable restrictions under Article 19(2). Justifiably, there are some exceptions to this right. Restrictions on the exercise of the right can be imposed including in the interests of the sovereignty and integrity of India, security of the State, and public order among others.[1]

One does not have to seek permission from any individual or authority, or bow to ideological formalities to hoist the national flag. It is a matter of right. It gives us immense pride to hoist it every Republic Day on our roof-tops, carry it during India’s cricket matches or when sighted in a foreign country. To be honest, I cannot recall the exact meaning and significance of the three colours and the Ashoka Chakra in our national flag that was taught to us in school. Yet, like most of you I can recognize a tiranga when I see one. As a child, watching the movie Roja in early 1990s, tears of rolled out of my eyes when protagonist wrapped himself in fire and rolled on the ground to save the flag from burning. May be, some of you can identify with me on this. To me maintaining the dignity of the flag is of utmost importance. A part of it is to keep it free of political one-upmanship.

Yes, BJP may have the right to unfurl the flag. At the same time, given the events of the last few months the government may also be right in fearing for the peace, tranquillity and public order in the region. To me, both these stands seem to be merely political – using the flag hoisting to derive political mileage and stopping of the same for political pandering. In a few days, this issue will be forgotten before it is raked up again next August 15 or January 26. In the process, the casualty will be the tricolour, its dignity and our pride.

A few hours before the Republic Day celebrations and the hoisting of the tricolour, I wonder – even after six decades of our Republic, is it too much to ask for our right to freely hoist the tricolour? Is it too much for the country to come together as one to raise the tiranga in unison? Is it too much to ask ourselves as a nation to maintain the dignity of our national flag without subjecting it to narrow political gains?

Happy Republic Day!

Growing Complexity of Public Affairs

An important impetus for integration of non-governmental professionals in public policy-making process has been the increasing complexity and sophistication of public affairs. The affairs of the twenty-first century government is both continuously expanding and growing more complex. Compared to a few decades earlier, there are many variables and stakeholders in most public issues. Issues like trade negotiations, climate change, human rights, etc. have only made governmental decision-making more complex. Furthermore, in a fast globalizing India with an increasing international role, government’s policies are scrutinized not only by domestic stakeholders but also by the international community. Policy formulation in this environment can no more be done by generalist civil servants but requires experts. The government is responding to the same, although in an ad hoc manner, through lateral hiring.

This phenomenon is discernable not only in the many lateral appointments enumerated in the previous post, but also borne out in many governmental studies and statements. Elaborating on the changing nature of public administration, the Second Administrative Reforms Commission (ARC) said that there is a need to recognize the complex challenges of modern administration in many sectors like policing, justice delivery, education, healthcare, transportation, land management among others.[1] In the questionnaires distributed by the ARC and the Sixth Central Pay Commission to elicit public opinion, both the Commissions had posed pointed questions regarding the relevance and importance of allowing lateral entry into the government.[2] The ARC concluded that there is almost a universal acknowledgment of the need to induct outstanding skills and talent from outside the government to staff some positions in government departments.[3] Even the Pay Commission recommended a shift from career-based to post-based selection in the higher echelons of Government in order to get the best domain based expertise.[4]

Earlier, even the Committee on Civil Service Reforms, 2004, had emphasized the importance of government officials gaining NGO and private sector experience. It had recommended that after a period of ten years in service civil servants should be encouraged to go on a sabbatical to acquire additional knowledge and update their skills including a lateral move to NGOs or the private sector and return to government without losing their seniority.[5]

Young Population Demanding Greater Political Accountability and Participation

Increasing use of non-governmental professionals is also influenced by demand for greater political accountability and participation driven by a younger population. The demographic profile of the country is seeing a huge change with the “youth bulge” – the working population is more than the dependent population with a greater number of younger people. This younger population, the primary stakeholder in India’s future, is demanding greater transparency in the government and more participative governance. The spread of internet, telecommunication and media is also acting as catalyst of political awareness and accountability. This demand for greater accountability implies higher scrutiny of governmental programmes and acts as an impetus for smart and sensible policies that are effective in dealing with complex public problems. As already noted, the government is aware of the paucity of specialist policy-makers and is increasingly looking for external support.

Not only is young India demanding better policies, it is also keen on being part of the policy-making process. The present Indian growth story is riding on the strength on this large young population’s rising expectations which has influenced the demand for more say in governmental affairs. Being part of this segment, I personally believe that young Indians are no more satisfied with mere periodic exercise of franchise but also want to engage with and in the government. Talking about his motivation to work with the government, a 25-year-old investment banker (who quit his job to work with UIDAI) said, “Young people, educated, highly mobile and intelligent, want to do things that will impact the country while they are still in the prime of their lives…”[6]A similar sentiment was echoed by our very own Arghya Sengupta (who assisted the Indian Parliament with inputs on Nuclear Civil Liability Bill) when he said that his interest arose from a desire to be engaged with India and its policies.[7]

Clearly, there is a strong urge to be part of government’s development programmes but not necessarily the bureaucracy. The tremendous growth of the economy means that the governmental affairs and regulation are expanding which offers great scope for creative problem-solving. The nature of the task is in itself very appealing which is drawing youngsters towards governmental work, but they do not necessarily want to be part of the government. The attractiveness of governmental work is borne out by the fact that youngsters want to work on governmental problem for strategic reasons. Many look at government work as a great learning experience which will enhance their prospects in the private sector.[8] Despite the allure of such work, there is an unwillingness to spend many years in the junior rungs of the government subjugating oneself to the whims and fancies of the seniors in civil service, especially when many lucrative career options have opened up for these youngsters in the private sector. [9] However, there are a number of youngsters who have given up plum jobs in the private sector and international organizations to work on governmental policy-making in various capacities for a variety of reasons. The underlying point is that young Indians today are keen about the governmental sector and are forcing themselves through lateral entry into the Parliament, government departments, planning bodies, regulatory authorities, etc.

Responses sent to the Sixth Pay Commission too reflect these aspirations of the general population too. The Commission had asked a specific question – whether there should be lateral movement from government to non-government jobs and vice versa. Over sixty percent of respondents from across the country preferred lateral movement into the government.[10]

Concluding Remarks

In addition to the above two reasons, shortcomings of the Indian bureaucracy in the nature corruption and institutional inertia against reform, ensure the continued use of external professionals in public policy-making in India in the days to come. In fact, in this emerging policy environment, questions are being raised over the wisdom of continuing with the virtual monopoly of civil services over all the positions in the government. The demand for change is coming from not only the general public but also within the civil service. In a recent survey of civil servants, fifty three percent of officers agreed with the idea of lateral entry at higher positions, and among those, twenty three percent strongly agreed. In comparison, thirty six percent of officers disagreed with this proposition with a mere thirteen percent strongly disagreeing.[11]

Going a step further, the ARC stated that there is a need to institutionalize the process of induction of outside talent into the government.[12] The various appointments, statements and surveys point to me that lateral entry of external professionals in public policy-making is here to stay. Institutionalizing the same through a formal process is certainly a good idea. The earlier the government brings in changes to formalize the process and give it an institutional shape, the better it is for the country.

[2] “Issues for Civil Service Reforms: What Needs to be Achieved”, questionnaire distributed by the Second Administrative Reforms Commission, available at http://arc.gov.in/q-csr.doc (last visited on 8 December 2010); Questionnaire, Sixth Central Pay Commission, Government of India at 5, available at http://india.gov.in/images/banner/linktousbanner/questionnaire.pdf (last visited on 10 December 2010).

[3] Second Administrative Reforms Commission, Tenth Report (Chapter 9) at 208.

[4] Report of the Sixth Central Pay Commission, Government of India, March 2008 at 645.

[5] Committee on Civil Service Reforms, 2004, Government of India at paragraph 4.04, available at http://darpg.nic.in/darpgwebsite_cms/Document/file/CivilServiceReforms2004.pdf (last visited on 12 December 2010).

[6] “Youth Policy”, Indian Express, available at http://www.indianexpress.com/story-print/717163/ (last visited on 9 December 2010).

[7] “Oxford, Harvard minds helped N-Bill”, Hindustan Times, available at http://www.hindustantimes.com/Oxford-Harvard-minds-helped-N-Bill/Article1-593253.aspx (last visited on 9 December 2010).

[8] “Youth Policy”, see above.

[9] “Engage the Experts”, Business Standard, available at http://www.business-standard.com/india/news/a-k-bhattacharya-engageexperts/398960/ (last visited on 9 December 2010).

[10] Responses to the Sixth Central Pay Commission Questionnaire, Report of the Sixth Pay Commission (Annex), March 2008 at 327-329.

[11] Civil Services Survey – A Report (2010), Government of India at 34-35.

[12] Second Administrative Reforms Commission, see above at 208.

Traditionally, public policy-making in independent India was the exclusive domain of the government with most work done by the Executive dominated by the Indian Administrative Service officers.[1] While there were external influences on government policies from business groups, labour unions, farmer associations and other organisations, there was only a limited formal role for individuals other than career public servants in the process of policy formulation. However, this is changing with the entry of external professionals. This trend began with a few rare appointments in the 1980s and 1990s. Especially, Rajiv Gandhi’s appointment of Sam Pitroda, a telecommunications expert and an entrepreneur, as his advisor to transform India’s telecommunications and information technology infrastructure is part of India’s telecommunications growth folklore today. This trend has however intensified in the 2000s with many appointments to important positions in the government being filled by non-governmental professionals. 

The second term of Manmohan Singh led government has seen a greater number of external professionals working in various governmental advisory positions. In 2009, Kaushik Basu, a professor of economics at Cornell University was appointed as the Chief Economic Advisor to the Ministry of Finance, and in 2010, TCA Anant, a professor at the Delhi School of Economics, was appointed the chief statistician of the central government. Recent appointments have transcended economic policy-making. For instance, the National Innovation Council, set up to develop a national strategy on innovation with a focus on an inclusive growth, consists of several leading professionals from fields such as media, health, business, academia, and others. In an encouraging move of extending this trend to lower levels, the Planning Commission started a programme of short-term employment for “Young Professionals” renewable annually to work on policy formulation and programme evaluation. Some of the young professionals recruited by the Commission come from backgrounds such as education, healthcare, journalism among others.[2] 

In terms of public perception and profile, the appointment of Nandan Nilekani as the chairman of Unique Identification Authority of India (UIDAI) stands out. Nilekani, a prominent business leader (almost a house-hold name in the middle-class India), has been accorded the rank of a cabinet minister to lead the ambitious project of creating a unique identification number for India’s one-billion population. Undisputedly, this is one of the biggest social security projects undertaken by the government in recent history. The project is a complex one with many variables including technological, financial, logistical, legal and political issues. Given the enormity of this project, trusting a private sector professional with no background in government is a telling indication of the changing narrative in public policy-making process in India.

Critically, appointments from the non-governmental sector are forcing themselves into traditional strongholds of civil servants. For instance, Subir Gokarn was appointed as a Deputy Governor of the Reserve Bank of India in 2010, for which appointments are made mostly from a circle of bureaucrats and “government economists” marking a radical shift in the government’s approach. Subir Gokarn was earlier with Standard and Poor’s, a credit rating agency. Incidentally, another potential candidate who was interviewed for this position was Jahangir Aziz, J.P. Morgan’s chief economist in India.

Besides individual appointments, the growth of private sector since the reform process began in the 1990s and strengthening of industry associations have enhanced government’s reliance on external expertise. For instance, the Indian government’s decision-making process leading to the WTO agricultural trade negotiations in 2001 involved substantive discussions with the industry bodies and civil society groups to develop its comprehensive proposal to the WTO. This was in absolute contrast to the Uruguay Round negotiations, where the government did little to consult the private sector and civil society.[3] Recently, the Planning Commission constituted an expert group to examine the process and nature of government-industry consultations and recommend measures for improvements. The constitution of such a group reflects the government’s acknowledgement of the increasing relevance of industry bodies in public policy-making.

To me, the above anecdotal evidence points towards increasing use of external professionals and importantly an attitudinal change on the part of the government of allowing lateral entry into the government. This is a clear change in trend in the policy-making process of the government from the past. Given this change, I am more interested in raising an important question surrounding these events. What is driving this change? And, whether this trend will continue in the days to come? In the next post, I will place before you two primary reasons which I believe are leading this change and will also sustain the same.

In the interim, it will be great to hear your thoughts on – 1) whether you see this as a changing trend in public policy-making from the past, and 2) if so, what reasons do you think are bringing about this new trend.

[2] “Youth Policy”, Indian Express, available at http://www.indianexpress.com/story-print/717163/ (last visited on 9 December 2010).

[3] Shishir Priyadarshi, “Decision-Making Processes in India: The Case of the Agriculture Negotiations”, Managing the Challenges of WTO Participation: Case Study 15, available at http://www.wto.org/english/res_e/booksp_e/casestudies_e/case15_e.htm (last visited on 9 December 2010).

Complex and sensitive, issues relating to compensation including R&R need to be addressed by considering multiple dimensions. In all cases of land assembly for private entities, it is essential that the individual from whom the land is acquired has a voice in the process, especially in determining compensation and R&R. Once land acquisition for a project is approved by the government, the primary and default mode of compensation and R&R assessment should be consensual, based on free negotiation between the concerned land owners and the private entity requiring land. This will make the acquisition process democratic and also offer individuals the power to determine a realistic value of their land which will make them willing participants of development rather than sacrificial lambs for the developmental agenda of the state or private projects. However, a completely market-based approach is partially skewed due to imbalance in negotiation power and information asymmetry. Not only do the small and fragmented land owners have to face large corporate with superior bargaining power and open to strong-arm tactics, but also suffer from limited skills and expertise in valuation. The government needs to be involved here – to ensure equity by monitoring against potential abuses of the process and provide the displaced owners assistance in valuation of the land. Where negotiation fails due to instances of holding-out with a few owners refusing to sell their land, which can jeopardize the entire project, the State may be permitted resolve the issue by employing the power of eminent domain if the public interest is served. A meaningful threshold for negotiated land acquisition has to be set. This must be met having regard to both the number of owners whose land is required and overall land required for the government to step in. In cases of state-sponsored development, compulsory acquisition should be permitted only when the “public purpose” is clearly demonstrated and after a bona fide attempt at consensual negotiation, both of which should be approved by a court of law.

            Besides, a consensual mechanism, the eventual success of a compensation and R&R package depends to a large extent on the identification of all stakeholders. A sound land acquisition policy should take cognizance of both de facto and de jure rights in land. Acknowledgement of de facto rights will enable indirect stakeholders with no recognizable legal right to the land to be part of the acquisition process. The definition of de facto rights should neither be too broad nor too narrow; it must be comprehensive, yet flexible enough to bring on board all genuine dependents of the land in the given socio-cultural-economic context. Thereby, a consensual mechanism with all concerned stakeholders will provide an objective process to reach a mutually acceptable value, to reflect both the present and future potential of the land. Besides adequate cash compensation, valuation of land can be made more equitable by encouraging alternative forms of compensation – for instance, restitution of a part of the land to the owner after the development or perhaps even offering equity in the commercial venture or providing jobs to the displaced with appropriate arrangements for technical training. Such alternatives will not only compensate for the loss of land but also lay down the foundation for effective R&R.

            Given the intimate relationship with land that many Indians share, R&R cannot be limited to mere physical relocation of the displaced; it should entail social, cultural and economic support suited to the specific geographic and ethnic needs of the displaced. Most importantly, it should be sustainable, and not merely a one-time event. For instance, in the absence of proper awareness and ability to handle cash, monetary compensation is frittered away in conspicuous consumption or loss by fraud, leading to a general social unrest. Hence, a comprehensive R&R package should cover essentials such as housing, education and sustainable livelihood to ensure a long-term solution.

            Development projects and concomitant land acquisition seem to be an inevitable phenomenon of the modern growth paradigm. However, given the importance of land in the economic and socio-cultural lives of Indians, it is inherently linked to rights, poverty, development and equitable growth. Hence, a carefully crafted overall land acquisition policy is extremely critical; compensation and R&R are the first steps towards a meaningful change in the policy to avoid another Nandigram, which our policy makers seem to have forgotten very quickly.   

Undoubtedly, growing urbanization, increasing infrastructure requirements and rapid economic development have imposed high pressure on land in India. Private land is regularly acquired for both state-sponsored development and private projects, which has increasingly become contentious. Compulsory acquisition of land is primarily governed by the Land Acquisition Act, 1894 (the “Act”), a century-old legislation enacted in a very different social, economic and political milieu. Post-Independence, the Indian government has not fundamentally changed the acquisition policy to reflect the values and needs of our times, which has resulted in legal, social, cultural, economic and political fallouts. Assembly of land is needed for public purpose and economic development, but the present land acquisition policy is deficient in many respects. Bills seeking to amend the Act have been introduced in the Parliament since 2007 but political consensus over the amendments has been elusive. In this context, the primary bone of contention in the present framework relates to issues around compensation and resettlement and rehabilitation (“R&R”), which I seek to address in the two parts to this piece.

Mechanism for Compensation Determination: The Act embodies the doctrine of “eminent domain”, which allows the government to compulsorily acquire private land for a “public purpose” provided it pays just compensation. Compulsory acquisition conflicts with the right to property of an individual, which is compromised every time a person is forced to give up his land against his will. However, the present land acquisition process provides for very minimal involvement of the land owner in determining the value of his land. Such abridgement of one’s rights over land coupled with government’s excessive intervention in compensation determination has led to great resentment and questioning of the State’s role in land assembly in a market-oriented economy.

Adequate and Appropriate Compensation: Compensation is calculated on the basis of prevailing market-value of the land derived primarily from past transactions. This approach is oblivious to the practical realities in India where the market is illiquid due to regulatory restrictions and values are underreported to evade tax implications. Also, the guiding principle in determining compensation is to restitute the landowner to the same position after the acquisition as he was before, neither worse nor better. While this was an acceptable solution a century ago when land prices were less volatile and subject to external conditions, today’s oustees lose out on the potential benefits of the developmental project, especially when there is a shift from agricultural to non-agricultural use. An adjacent land owner who does not lose his land stands to gain from the proposed project due to appreciation in land prices and other benefits of the project, but the person who has lost his land is alienated from the developmental process. These issues regarding compensation result in a highly inequitable outcome to the land owner, resulting in many controversies affecting the overall economic development of the country.    

Compensation for the Deserving: Compensation for the loss of assets is presently based on title, and therefore, only land owners and tenants are entitled to compensation. A vast number of people dependent on those assets for their livelihood and sustenance such as sharecroppers, wage-labourers and persons dependent on common property resources are left out as they do not have legal title to land.  Due to India’s high population density, such groups are inevitably the most affected when uprooted from their ecosystem due to land acquisition.

Beyond Monetary Compensation: For a vast number of Indians, land is not mere property but also serves as a source of identity and security. Forcible acquisition of land, therefore, not only dispossess a person from his land but also invariably wreaks social havoc by separating families, interfering with traditional livelihoods, and depriving whole communities of sites of religious and cultural significance. Clearly, these disruptions can in no measure be adequately indemnified by mere monetary compensation; hence, R&R has to be an integral part of and precondition for compulsory land assembly. Also, a one-size-fits-all approach cannot be adopted in R&R due to ethnic and cultural diversity in India. This is a limitation in the National Policy on Resettlement and Rehabilitation (NPRR) for Project Affected Families, 2003.

Even as I highlight these concerns in our land acquisition law, three farmers were killed and many injured on 14 August 2010 when police fired at a farmers’ protest in Aligarh. This lead to a furore in the Lok Sabha on 16-17 August 2010, and most MPs who spoke demanded that the government immediately look into the matter of compulsory land acquisition and introduce necessary changes. In the days to come we can probably look forward to the government’s response. As for myself, I will follow up with a framework for a just and fair compensation and R&R policy.