Towards A Legislator Oriented Model For J&K

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The administrative authority of the state  has to be made subservient to the development functionality of government, says economist and banker Dr Haseeb A Drabu.

In J&K there is a normal tendency to look at economy from a very restrictive perspective of government. As such,  economic policy becomes a very simple minded policy matter.

Haseeb Drabu

In my five years as Economic Advisor to the Government of J&K, the real policy decision or choices that we faced was how much more to get from the Union government and how. It was a single point agenda.

Rarely were there substantive question of any long term macroeconomic policy formulation for economic development, fiscal strategy or expenditure planning. This was despite the fact that the state budget was completely recast and attempts to formulate and design policy made. Yet, in the end, it boiled to one simple variable, what is the total level of assistance that we can manage from the central government to cover the fiscal gap. The fact is that almost 90 per cent of the total resources are in some form or the other coming from the central government.

Be that as it may, this level of dependence, in no way reflects the reality of Kashmir economy. What it does tell us is that the government is in a state of poor fiscal health. It doesn’t tell that the economy is not doing too well. It also tells that we have made no effort to integrate the economy with the government.

Many analysts and observers do tend to draw inferences about the viability of the J&K economy or the state from this simple-minded indicator of the dependence on central government for grants and for devolution. But the fact of the matter is that that is not the relevant critera. There are two or three components of this. A large part of assistance that comes from Centre is Constitutionally determined and a smaller part is ad hoc assistance that many other states get too. When you get to the totality of it, it is not as if the J&K government cannot survive without it. Yes, at the moment it can’t, but with fiscal policy planning and economic policy that integrates the economy with the government it can not only reduce the dependence but move towards fiscal autonomy. So in some ways we tend to subsume economy of J&K within the government, which should not be done.

More importantly, when we look at the changes required in economy, these are always seen in restricted sense on what to do with the government. We need to take a more classical view. Towards that end I think we need three things to address the economic issues in J&K and create a self sustaining vibrant economy. The first one is a new model of governance. The second one is a comprehensive institutional restructuring, and third is economic reconstruction.

To start with, the J&K state must take a lead in designing a governance model in which the administrative authority of the state is made subservient to the development functionality of the government. I think this is critical.

This can be done only one way, i.e by moving away from the current bureaucrat-centric model of governance to a legislator-oriented model of governance. This in no way is unique to J&K as it can be applied anywhere but the requirements for us in J&K range from representative character to larger political issues. So I think this is a fairly critical change, It is very restrictive kind of thing, but the issue is that we must move away from the current bureaucrat centric model of governance.

One specific thing in J&K which heightens the tension is that by and large the bureaucracy doesn’t have a holistic stake in the system. This compounds the entire issue in a slightly different manner than it does elsewhere.

There is no denying the fact that we are, including all state economies in India, over administered.  Notwithstanding the fact that today after the whole process of economic liberalisation, subnational economies or state economies can never drive the economic change in India now. It has far too centralised system.

Economic reforms have eroded the revenue raising powers of the state from the top and the 73rd and 74th amendments, which instituted Panchayati Raj as a Constitutional layer have been snapping at the heels of powers of the state government.  So in some ways the entire layer of state government has become redundant in policy formulation. In other words, they cannot drive economic change. This is more stark in the case of J&K for a variety of reasons. And it is in this context that one is talking of change in governance model.

If one were to make a broad distinction between “pure administration” and “developmental administration”, it can be safely said that the functionaries at the state level belong to the former and those at the district level belong to the latter. Ironically, the senior most and the most experienced administrators are placed in the former and the less experienced juniors are placed in the latter level. File has got precedence over the field.

Given that this is how we have organized our governance system, it is not surprising that there is lot of file work and no fieldwork.

Even with the best of individuals, ideas and intentions, the ideal situation in this organizational form of governance is will be that we will improve the departmental efficiency without enhancing delivery on the ground.

These observations read in conjunction with the earlier observation on institutional network seem to suggest that we need to empower the district level administration. There is nothing new or novel about this conclusion. Indeed, it has been the basis of the decentralization. The key lies in not only empowering the development administration but also making it less bureaucrat driven, more legislative oriented. This will bring about unprecedented accountability.

The proposed system is based on the premise of “functional responsibility” and “administrative responsibility”. Starting from the top, we should have cabinet ministers in charge of departments, as they are now. The next layers, i.e., of the Ministers of State, should be ministers of state with functional responsibility of districts or defined geographical areas not of departments. It is a very small reorganization but will have a huge impact on the delivery of development.

Realistically speaking, in the present set up and situation, the MOS is nothing more than unnecessary layer in our system. Having worked in government, I can assure you that this level can be safely dispensed with. So there will be no loss, indeed, if anything, there will be efficiency gains.

So how will the system work? The state cabinet remains as it is. Instead of having Ministers of State of various departments, working under the Cabinet Minister of that department, it is proposed to have a Minister of state of districts. For example, we will a Minster of state for Bandipora. Ideally, the MOS of a particular district will be chosen from among the ruling coalitions MLAs of that area.

The MOS will virtually be the Chief Executive of the district and all the district administration, which as we said above is the development administration, will functionally report to him, even as they may administratively report to their departmental heads and through them to the cabinet minister. Also, the MOS reports to all the cabinet ministers in respect of departmental matters.

The sarpanchs of his area will be his de facto assembly. He will run the district budget, ensure spending of the allocations across sectors within his district and execute all programs devised by the Centre and the state government.

As far as the state government is concerned, he is accountable for the development of his districts, it successes and failures. It will be his terminal responsibility.

The major implications of this simple change will be that the governance system of the state will be legislative driven governance and not bureaucratic led governance. This amounts to sayings that it will be a peoples led governance model rather than a babu led one. For all these are the elected representatives of the people in general and of that area in particular.

At an operational level, it will mean that our planning moves away from being a departmental planning exercise to an area planning effort. It will be development planning and not administrative planning.

One of the many consequences will be that the performance of the plan can be measured in concrete terms and that can form the basis of system of rewards and penalties.

The second step is the need of massive intuitional restructuring. This is needed because we are unable today to leverage the existing institutional structure and network that has been built over the 50 to 60 structure, whether that is floriculture,  sheep breeding , or pulse research etc. You name any development activity in J&K you will have a institute for that.

The tragedy is that these institutions have been swamped by administrative concerns and have ignored the developmental aspects, so we need to reengineer these.

The rigid administrative system, with overlapping of functions among different departments, and lack of a inter-department coordination has resulted in low working efficiency, and directly hampered creation of a service-oriented/result-oriented, responsible and responsive government. No reform can be delivered unless the existing structure is changed.

It is obvious that system is not leveraging, or more appropriately, not able to leverage, the institutional structure and network that it has laid out over the last 50 to 60 years.  The institutions of development have been swamped by the administrative concerns and development aspects are neglected.

There is need to reengineer it and give it a developmental focus. This can be done through an institutional restructuring plan for setting up function based integrated administrative structure to ensure greater efficiency in governance. The idea is to form user based ministry structure.

The new structure, for instance, could be as follows

a.      Ministry for Economic Development
b.      Planning, Rural development, Ministry for Human Development
c.      Education, Health, et al Ministry for Infrastructural Development
d.      Power, R&B, et alMinistry for Social Security
e.      C& PD, Labour, Welfare, Ministry for Administrative Affairs
f.      Home, Revenue et al

At another level, the government needs to corporatise the PSUs. The basic idea should be to produce not to privatize and thereby leverage government ownership. The PSUs are scattered across all ministries/departments resulting in multiple control and intervention resulting in inefficiencies. All PSUs must be brought under one ministry/department, preferably a new Ministry called the Ministry of Public Enterprises.

Gradually, it can be given a holding company structure that holds the stake in all PSUs. In this holding company a financial investor can be inducted even as we induct strategic investors in individual PSUs.  Do a complete financial reengineering of the PSUs. Convert government debt into equity; employees arrears in ESOPs and generate growth momentum.

Finally on the issue of economic reconstruction.

The need for reconstruction arises from the facts that the state has gone through twenty years of civil strife, we have gone through 60 years of centralised planning which bears no relevance to the structure of J&K

It we have an industrial policy without having an industry. We do not have industries, we have enterprises. We have 3,75,000 enterprises who have survived civil strife for the last 20 years, are making profits, and employing 7 lac people profitably.

In order to create employment all that is required is to increase the scale of these 375000 household enterprises. Currently these are father son enterprises – involving two people -, they can involve five people. But we won’t do that, because we don’t have a policy for enterprises, we have a policy for industries derived from the central government because there are fiscal incentives and concessions, Capital subsidy (90 % never used. We don’t qualify for norms, and our industries don’t need capital subsidy).

Instead of having an industrial policy we could better do with a small enterprise policy, which is not looking at fiscal concessions or subsidies. We have got a very bad name over the years with subsidies.

No matter which segment we look at, we find that the structure of economy has got no relevance to the policy. Same is the true of centrally sponsored schemes.

Notwithstanding the fact that we have a very robust primary education model,  which is the  reason the state .. , we still are looking at sarva shiksha abhiyan. Not bearing the fact that the overall poverty level is rest fo country 26 percent and ours is 3.25 per cent (contestable though).  If this is indeed so, why do need centrally sponsored schemes on of the cental government on povery allievation? t is a complete mismatch on what the government has to offer and what the J&K economy is. Again not to be confused economy with the J&K government.

The economy of J&K is faced with two distinct, though mutually reinforcing sets of problems.

First, the set of generic problems faced by most states and second the specific problems arising out of civil strife and militancy.

The first set of problems can be dealt with through stabilization — package of economic reforms and second through structural reforms — a set of reconstruction initiatives. The government finances are very weak which impairs its functioning, provision and delivery of public services.

Given this understanding, there have to be two sets of policies will be formulated: One, for government finances (fiscal policy) and another one for economic development (economic policy). In J&K there has always been an effort to merge the two but these must be independent though interlinked. Fiscal policy will not used to drive economic policy. For, the moment this is done, it results in tax concession and subsidies and the system gets trapped in a “giveaway” culture. This is neither good for the government finances nor can it help in evolving a sustainable economic structure

Finally, to ensure sustainable and structural reconstruction what is required is a:

i.      Development strategy of import substitution
ii.     Cross sectoral investment policy
iii.    Repositioning of the economy in line with our skill and strengths.

In addition to a massive public investment led strategy we need to have a development strategy of import substitution. For example on a daily basis the valley consumes 15 lakh eggs We produce one lakh. 14 lakh are imported. Why cannot we look at this.

We produve 1500 mt of mutton and produce not even 100. We need to look inwards, have a conscious policy of  import substitution for the next five years. India did that in the 1950’s. That is how we are surviving the way we are surviving. We were able to liberalise in 90’s on the back of a huge diversified industrial structure, which was put in place from 1952 to 1964. That needs to be done.

That also suits the entire sub national perspective of self reliance. Why are we not doing that.

Second is to take a gross sectoral investment policy rather than industrial policy. At that level we need three things, finance, technology and marketing. If we are able to do that you will see a huge change in entire set up of J&K.
Finally we need to reposition our economy in light of globalisation in line with our skills and strengths and not in terms of out strategies of integration or whatever.

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About Author

Haseeb A Drabu is an economist. He has worked with the Planning Commission, Finance Commission, and Economic Advisory Council of the Prime Minister. He has also been Economic Advisor to the Government of Jammu and Kashmir and Chairman and Chief Executive of the J&K Bank. His last public engagement has been Finance Minister of Jammu and Kashmir.

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