13 September 2019
My 13 Sep 2019 Advice to PM Modi’s Adviser: Let PM address each State Legislature, get all India Govt Accounting & Public Decision-Making to have integrity
I recently had a nice chat by email with one of Mr Modi’s economic advisers who knew me from years past. No I do not mean Bibek Debroy who was my stable-mate under Hahn at Cambridge in 1976. This adviser knew me as a colleague briefly in Washington during my American years 1980:1996.
My advice has been as follows:
In 2001 I gave a talk at the RBI on invitation of Bimal Jalan and YV Reddy on the importance of maximum transparency in India’s Union and State Budgets. A Premchand’s *Effective Government Accounting* is really the best book the IMF ever produced, and my aim has been to see it applied to all public budgeting in India, especially in the information age… so any failed BCom or village accountant besides our 4125+ State legislators and all Union legislators and GoI officials can have at hand on demand for free all information about public resources, activities, expenditures, financing thereof etc. Mr Premchand and I met in his offices about 1998 when I last visited America and he thought my work was “light years ahead” of where the Government would reach.
The future PM Narendra Modi came from India to DC in October 1984 where I had been asked by Shekhar Tiwari whom you may know to give a Deendayal lecture, which I did. I recall Modiji well from that time. We have not met since. I should like him to be writing to each State Legislature Speaker seeking to address each State Assembly if they wish to extend an invitation, one by one. The aim of his addressing each State Assembly one by one that wishes to hear him (all will) would be to establish a Union-State link of fiscal cooperation, getting all State Government accounting cleaned up to the Premchand standard, so everyone in the country knows easily or can find out easily what is the state of finance in each State (as well as the Union of course).
It would take a few months plus two dozen rooms and a team of about 40 people to modernize all India Government accounts to the best world standards or even surpass them.
Obviously Planning had to go and I said so publicly in May 2014 as soon as Modiji was elected. At the same time, I said Finance had to be bifurcated, creating a new Ministry of Money and Banking where RBI and all PSU banks could be hived off. Then Finance would be left with doing Budgets, both Union and helping with States, all year round, getting them to the Premchand standard which is, basically, the world standard. Now I see “Corporate Affairs” has been a systemic problem too, because it allows Big Business to have too easy access to the Minister and his/her agenda and the latter never even gets to start normal public finance. Finance without Money and Banking and without Corporate Affairs can and should be handling all Budgets, year round, no lobbying.
You can see in this thread https://twitter.com/subyroy/status/1119845358572646400?s=20 up and down what happens as a prototype if the Premchand template gets applied in India.
In the meantime, a monetary disaster is unfolding on the RBI “surplus” issue… there is no surplus… it is a mirage… #RBIMirage. You may see it herein:
I had denounced in 2007 what Manmohan, Montek, Chidambaram had tried which was very similar, and they stopped. Now Modiji, the FM, Bimal Jalan et al have followed suit, even worse. Do tell them.
I completely agree the West, the Russians, etc each have their own agenda (and local agents in Delhi).
The IT revolution has reached everyone in India, working classes especially. Yet worldwide and with us especially public finance and public decision making remain untouched and backward.
It would take 6 months and a small team to apply Premchand to each State’s finances and the Union too. That is not about markets but about govt activities (in the public finance sense) and expenditures, hence political discussion about priorities. All State legislators plus aam janta should become empowered with public finance data. All India is in the States. Hence I would like to see PM address each State legislature one by one… build the fiscal cooperation framework as described. More later…
The root problem is something I started working on in 1993… Hubert Neiss at the IMF asked me “Do you understand the States’ budgets?” because nobody at the Fund or Bank did! I fibbed and said yes, knowing I knew more than they did. 🙂 But seriously
India’s States, the 18 larger of which are as populous as countries,
have no control over direct or indirect taxes… hence there is no incentive to either limit expenditure or control incurrence of public debt…
Where does all that public debt go? Into banks’ asset sides! Ie all the bad spending decisions of both GoI and States end up as bank assets! So the banks keep sinking!
Where and how PM and this govt must act is to make it the next step that Sardar Patel would have demanded: namely, Sardar gave us the federal democratic set up, he *created* the States, 18 of which are as big as countries (see Table)… Now Sardar would have demanded proper budgeting and spending… *not* garbage “austerity”… but decisions under control and public discussion… civil strife itself will reduce eg in NE… !
Everyone needs to carry forward to the next stage #SardarVallabhaiPatel #StatueOfUnity nation-building: modernization of all gov’t accounts & audit. Everyone in India can & shd know how public resources are being spent & how raised.. exactly.. https://twitter.com/subyroy/status/1119845358572646400…
My idea has been #twodozenrooms… in Delhi… joint GoI and State teams… one room each for the 18 larger States https://twitter.com/subyroy/status/1029412133665169409 maybe two for UP plus J&K Goa Him Uttarakhand, 7 remaining NE Sisters.. Combined Union & State Finance teams then get all their budgets exactly right.. inc military & railways
getting all govt accounting to the best available world standards… Union, all States, all PSUs, military, railways, everyone
a clear head, CAG data, Premchand’s book, 40 desktops and Excel… will take two months 24/7 work… 40 people in each of three shifts…
the data are all there with CAG… every activity, every expenditure… every anomaly… gets revealed… who is supposed to discuss spending priorities then? aam janta of course through their 4125+ State level + 800 Union legislators… let there be proper discussion in Assemblies… the State legislatures are dysfunctional, so is Parliament almost! Not because they want to be but because they are uninformed about problems and data!
So a massive change in our public discourse if aam janta and any legislator can access and discuss top quality public finance data… let them decide and talk about what priorities should be… the mind focuses then on **numbers**… which are hard data… It will be top of the world incidentally… no large country has done this, certainly not the USA etc… corruption also crashes as everyone can see everything…
PM starts the process by writing to the State Speakers… yes seeking an invitation… to address State legislators… **nothing partisan** no political meetings…. just PM and State as Constitutional entities… each State taken seriously one by one… Not three four the same day as he does with tours to NE. The process can take a year or more. The Speakers respond with an invitation or not… a scheduling is done… one by one… no political party favouritism… he speaks addressing serious problems… about concrete decision making and processes… no rhetoric is needed… He gives them a template of their Budget/accounts in the best possible world format… they have to then use all that data, decide what they want to do, how much help do they want in making better decisions… Ie it is a change in process….
As for the private sector, first thing is to get “Corporate Affairs” out of the Finance Ministry! That has become the vehicle of entrenched lobbying! It explains Chidambaram and Jaitley and all of them! Yes I have blasted Big Business for (a) their frauds; (b) their attempts to push risk onto the Government whenever possible… there has been systematic elite capital flight and international arbitrage allowed by both Manmohan and the present Govt!
The Government says to the private sector: we are cleaning up all our accounts, Union States Military Railways etc… all… you had better do the same and fast…!
16 May 2014
Mr Modi’s victory is more amazing and bigger than Reagan’s in 1980 or 1984, or Thatcher’s in 1979 or 1984…One hopes one does not have to make comparisons with any earlier times… The interviews he gave in recent days were excellent in their sobriety, quite unlike his sneering rabble-rousing mass speeches… I have said I do not doubt his commitment to India’s national interest, and I add I do not doubt his managerial competence. What does concern me is the vacuum of commonsense as well as expert reasoning around him although that around Sonia-Manmohan was as bad as well as being more pretentious. If Mr Modi can do anything like what I said in Delhi on 3 December 2012, which Manmohan was too incompetent and bureaucratic to even try, he has my applause. The first task is to ****not**** fill up the so-called Planning Commission with BJP worthies and cronies, and instead ***to declare he is closing it down and integrating its assets with the Finance Ministry***… The second is to remove control of the banks and the RBI from the Finance Ministry and create a different agency or department or even Ministry for Money & Banking. Finance (with Planning under it) does the fiscal budgets and government accounting, for Union and States. Money & Banking seeks to bring some slight semblance of integrity to the currency for the first time ever, both at home and abroad. Don’t ask Montek Ahluwalia, don’t ask Rangarajan, for heavens’ sake don’t ask Manmohan Singh or even his young man Raghuram Rajan… Just do it…
18 May 2014
Mr Modi has a unique chance to change the face of Indian governance for the better — and the chance is now, **before** he announces a Cabinet. Essentially, he is beholden to no one in making his choices, he can bring in the maximum amount of commonsense and expert reasoning right at the start.
My first recommendation has been to *scrap the so-called Planning Commission* rather than populate it with BJP cronies and worthies where it was populated by Congress worthies and cronies before. If you start populating it with your cronies then you have lost the plot immediately, as you are needlessly creating vested interests once more, impossible to get rid of later. Vajpayee-Advani lacked the guts and vision to do this. Modi can do it easily. Montek Ahluwalia and Manmohan Singh got the so-called Deputy Chairman to have a higher rank in the Order of Precedence than elected Chief Ministers of States! Ahluwalia attended Union Cabinet meetings and “GOM” meetings as a member without being elected to anything at all. The Planning Commission’s physical assets should be merged under the Finance Ministry immediately with a one-line Executive Order. At the same time, the RBI and the nationalised banks should be removed from the Finance Ministry’s control completely, if necessary into a new Ministry of Money & Banking.
Finance (& Accounts and Planning) are then tasked to get the budgets right, both Union *and* States — *and including the military and the railways*! That is all they do, that should be their full-time year long occupation, nothing more, not listening to or yielding to lobby groups, not allowing anyone to get even faintly close to them, just getting all the Budgets right. Money & Banking would run the nationalised banks on commercial lines (and that means being ready to battle their fat cat unions), plus there is the RBI with its usual banking supervisory and money creation and balance of payments management roles.
Secondly, change the name of the Defence Ministry to the War Ministry or Forces Ministry, Raksha Mantralaya to Yudh Mantralaya or Fauj Mantralaya. India has never fought an aggressive war and is not going to do so now. Every war it has fought has been defensive, so calling it the Defence Ministry is superfluous and even perverse. Calling it the War Ministry tells it what to do, namely, win any war that is thrust on you, any which way you can and at least cost all around. Simple as that. Why it is perverse to talk of a Defence Ministry is because of its fiscal implications. Fat cat peacetime generals, air marshalls and admirals are prevailed upon by foreign weapons’ salesmen acting through ex-servicemen Noida brokers to waste public moneys endlessly on innumerable things which are utterly unrelated to war-fighting capabilities. And there can be no fiscal responsibility ever in India until the military budgets are brought under control. I have called the military budget the Black Hole of Indian public finance, no one knows what goes in or what comes out. And the preparedness for war itself is unknown as well — as the Mumbai massacres showed. Mr Modi and his putative War Minister should simply get the generals, air marshalls and admirals to tell them what plans they have to win different wars thrust upon them in different scenarios; what are their strategies to win those wars, and what resources do they need for those strategies to prevail; that is how you figure out the military budget. All the rest is fat, which only causes corruption and inflation too.
Thirdly, design a better cabinet on the lines, for example, I would have given to Rajiv Gandhi if he had not been assassinated. Manmohan Singh had 79 Ministers! You only need a dozen senior ones and a dozen junior ones, really…
Don’t set up a committee of worthies to examine all this… Just do it… I will applaud and so will everyone else…
See especially this…