Tech dollars: A slow trickle to the bottom

The most defining feature of the past two decades has been the emergence of information technology networks. Unlike in the pre-internet era, physical boundaries of nations have no meaning. Fat pipes of optic fibre have allowed work to be shipped from developed-hence, higher wage-countries such as the US to low-income countries such as India. That has allowed a handful of Indian cities including Bangalore, Delhi, Mumbai, Chennai, Hyderabad and Pune to become a part of the virtual global economy. With the result, there are several interesting, and alarming, changes taking place in the city economy. For one, some of them-Bangalore, for instance-do more business with cities outside the country than they do with those inside. That's the good part. The bad part: The cities are becoming neither equally nor equitably prosperous. Wages of the knowledge workers are soaring and will tend to creep up closer to those of the workers they have displaced abroad, before the market corrects itself. In contrast, lives of the people engaged in the informal economy are not improving at the same rate. That, then, is the biggest challenge our cities face.

To be sure, inequalities in cities have always existed. When the Industrial Revolution first turned cities into what they are-engines of their economies-there were always the rich industrialists and the poor workers. The rich lived in the centre of the city, while the poor lived on the fringes, in squalid conditions. Labour reforms and worker unions have since managed to get a better deal for the organised worker, but the worker in the informal economy still lives hand-to-mouth, with no medical or pension benefits. And in cities such as Mumbai and Delhi, nearly half of the workers earn their living as hawkers, road-side vendors, or mechanics.

The cities cannot afford to let the divide worsen. The social implications are far too grave to turn a blind eye to it. City development, therefore, must be holistic. It's fine to say that municipalities should introduce realistic user charges, but when that means millions of poor will have no access to piped water, one needs to rethink the conventional economic wisdom. Similarly, while removing slums may be necessary for planned development, the relocation should be taken up as an opportunity to improve the living conditions of the dislocated. The municipalities need to do something else: They need to become more efficient. At present, revenue collections (largely property tax) at the big Indian cities is way below the potential. Most cities can simply double or treble their income by reforming and updating their governance systems. They can then plough this money into infrastructure that is accessible to all. Then, the virtual cities would have become virtuous cities.

Populist Ploy

The government's ritual of appointing a pay commission every decade to revise the compensation packages for its employees is turning out to be an exercise in populism. And there is no reason to believe that the recently constituted Sixth Pay Commission will be any different.

Consider. The Centre decided against swallowing the bitter medicine suggested by the Fifth Pay Commission-paring employee strength by 30 per cent over a decade. It, however, increased its salary bill by around Rs 17,000 crore. The central and state governments are still contending with this act of fiscal profligacy. Furthermore, this move has fattened those already earning more than what they deserve-the lower rung of the government departments, including those interfacing with the public. Meanwhile, the lot that shapes government policies, negotiates the industry's interests in global trade agreements, or oversees tax compliance is ill-compensated. This is the larger danger. For example, the competitiveness of Indian industry can be frittered away at the hands of incompetent bureaucrats who are not versed in the intricacies of world trade. Similarly, improving the tax-GDP ratio requires officials endowed with special skills; else the government will find it difficult to cut taxes and ensure higher revenues and greater compliance.

Reforms in the country have led to lesser regulation in sectors where competition is adequate. To that extent, government intervention has reduced. However, in sectors where this has not happened, regulatory risk (read regulators) has replaced government risk. These regulators, unfortunately, are staffed by retired bureaucrats, either because the salary is capped to that earned by the seniormost bureaucrats in the department, the secretary, or because the selection committee has a bias for its own kind. In the larger picture, what finally cuts is talent, and the ability to attract it; issues like manpower count far less (the percentage of government employees to the total population in India is far less than that in some of the developed countries). Thus, fears of a bloated bureaucracy are less worrisome than that of perpetuating an inefficient one.

There is another fundamental flaw in the government's approach to compensating its employees. It divorces compensation from both the work profile and the skills required for the job. In effect, lateral entry from the private sector, something that could improve the quality of governance, is near absent. The new pay commission, then, would do well to intelligently devise compensation structures that attract talent and are performance oriented.

Go Straight To The People

Singur farmers: Red and reformed

One has to hand it to the Marxists; they don't do things by halves. They embarked on land reforms three decades ago when other, mostly Congress-ruled, states were paying only lip service to it and sealed their grip on power in West Bengal. Now, when the central government and many states are scratching their heads over how to package and sell economic reforms to the electorate, the West Bengal government has, unexpectedly, come up with what looks like a winning formula-instead of a top down only approach, it has opted for a judicious mix of top-down and bottom-up strategy. Resistance to change is inherent in the opposition to reforms. No elite anywhere in the world has ever given up its privileges without a fight. So, when the West Bengal government announced ambitious plans of acquiring agricultural land for setting up industries, the decision was met with howls of protests from affected farmers and their political backers. Chief Minister Buddhadeb Bhattacharjee's ambitious Reforms 2.0 was threatening precisely those sections that had benefited most from the Left Front's Reforms 1.0 AKA Operation Barga (under which hundreds of thousands of acres of vested land had been distributed to landless agricultural labourers and marginal farmers).

Instead of treating the simmering discontent as a law and order problem, the West Bengal government co-opted the CPI(M)'s formidable grassroots network into the scheme. The block-level administration would play only an enabling role; the crucial task of convincing farmers to part with their land was left to influential local party leaders. Result: farmers in Singur, where the Tatas are planning to set up their Rs 1 lakh car factory, have already offered 500 acres of land for acquisition. Yes, pockets of resistance-mostly from unregistered share croppers and those who don't have clear title deeds-remain and Opposition leaders are fanning these flames (see The Battle For Land, Page 156), but given the CPI(M)'s stranglehold over the grassroots in the state, it does seem likely that the Bhattacharjee administration will succeed in pushing its agenda through.

There's an important lesson in this for Messrs Singh, Chidambaram, Ahluwalia and company. Bhattacharjee has won support for his vision by going over the heads of power brokers and vested interests and marketing his plans directly to the people. It may be good idea if the central and state governments stopped talking to Bhattacharjee's party colleagues in Delhi and sold their ideas straight to the people.