AUGUST 23, 2015

By Naresh Minocha, Our Consulting Editor

MODI transforms from dream merchant to grand illusion innovator.

Public sector Banks-aided start-ups are mushrooming across the country.

From Ms Anung Phom's (8th class drop-out tribal) Dhaba in Nagaland to Ms Hema Sudha Sakhre's (farm worker-turned entrepreneur) Bedana/rasin unit in Maharashtra and From Ghulam Mohi-Ud-din Bhat's (lower middle-class) carpet weaving unit in Jammu & Kashmir to P. M. Murugesan' s (school drop-out OBC) banana fibre-based products unit in Tamilnadu, all share a common bond. And it is the Prime Minister's vision for start-ups and jobs

Please don't mistake these tiny units as an overnight outcome of Narendra Modi's clarion call from the ramparts of Red Fort. Many such enterprises have come up under Prime Minister's Employment Generation Programme (PMEGP) that was launched by UPA following Dr. Manmohan Singh speech on 15th August 2008!

And Modi turned a blind eye to this UPA legacy that would elate any rationalist Indian.

In addition to PMEGP units, several lakh micro enterprises, self-help groups (SHGs) and cooperatives have bloomed under different schemes. A notable scheme is National Rural Livelihood Mission (NRLM) for which India signed $ 1bn, 5-yr soft loan agreement with International Development Association (IDA) in 2011.

These and other facts on issues ranging from corruption to labour code have been marshaled in this column to take the fizz out of grand illusion created by Mr. Modi's Independence Day speech.

Barring a couple of good announcements, PM's claims were nothing but repackaging of UPA's schemes and achievements. He passed them off as them as his initiatives to realize Indian dreams.

More disturbing feature of the Speech was that it distorted facts and misled the public. One does not know whether to blame PM or his coterie of advisers for this let-down on a solemn occasion.

In his speech, Mr. Modi resolved to launch 'Start-up India' and 'Stand-up India' drive in the coming days. He urged 1.25 lakh bank branches across the country to fund equal number of tribals and dalits to launch tiny units.

PM also desired these branches should formulate a special scheme for women entrepreneurs.

PM exuded: "You will find that within no time, India would see a network of start-ups. New entrepreneurs would emerge and they would in turn provide employment ranging from one to two to four persons which will transform India's economic life."

PM did not give a correct picture of start-ups initiatives that have been going for several decades under Khadi & Village Industries Commission (KVIC), National Small Industries Corporation (NSIC), Coir Board, Self Employed Women's Association (SEWA), etc.

He did not mention a word about Credit Guarantee Fund Scheme for Micro and Small Enterprises, National Entrepreneurship Development Institutes, Micro Finance Programme and Micro and Small Enterprises – Cluster Development Programme (MSE-CDP).

Many micro enterprises are today struggling for survival. Modi Government thus notified on 29th May 2015 a statutory scheme named 'Framework for Revival and Rehabilitation of Micro, Small and Medium Enterprises (MSMEs).' The scheme is similar to the ones operated by public sector banks for bailing out big debt-laden companies.

The underlying message here is: We should vigorously nurture a diversified portfolio of new micro enterprises by learning lessons from the failure of existing ones. Corporate chieftains going gung-ho over Mr Modi's start-ups idea should thus be viewed as an exercise in adulation.

Another important factor to keep in mind is that State Governments and banks don't have adequate institutional mechanism to nurture and sustain entrepreneurship especially in rural areas.

This limitation led the Union Government into pruning down NRLM in May 2013. As put by Ministry of Rural Development in an office memo during February 2014, "Considering the low (fund) disbursement position, it was decided the project can be undertaken in two phases. The present project has been downsized to US USD 500 million by partial cancellation."

According to IDA's latest project implementation update prepared in July 2015, "The project has now been rolled out across 131 districts, 380 blocks and nearly 39,669 villages in the thirteen participating states. The program is intensively working with more than 3.7 million households, mobilized into nearly 325,000 Self Help Groups that are managed exclusively by women. Nearly 64 % of these groups belong to low income states of Bihar, Jharkhand, Chhattisgarh, Uttar Pradesh, Madhya Pradesh, Rajasthan and Odisha. The project has also promoted nearly 16,230 Village Organizations (federation of SHGs at the village/panchayat) and more than 130 Cluster Level Federations (CLFs). One of the hallmarks of the project has been its highly inclusive nature with more than 56% of households mobilized in SHGs belonging to the Scheduled Caste, Scheduled Tribes and Minority HHs."

This shows that a lot of what PM desired is already happening on the ground.

Turn now to certain other initiatives/issues that figured in Mr. Modi's speech.

Take the case of corruption in coal blocks allocation during UPA regime. Mr. Modi claimed: "CAG said that when coal blocks were allocated through lottery, the nation lost Rs 1 lakh and 74 thousand crores."

This is incorrect statement, to put it mildly. CAG, in its report on ' Performance Audit Report on Allocation of Coal Blocks and Augmentation of Coal Production' neither used the word 'lottery' nor 'loss'! CAG computed presumptive "financial gains to the tune of Rs 1.86 lakh crore" to companies that were allotted coal blocks through discretionary process.

CAG report, released in August 2012, stated: "A part of this financial gain could have accrued to the national exchequer by operationalising the decision taken years earlier to introduce competitive bidding for allocation of coal blocks."

PM said his Government has rooted out corruption by auctioning coal blocks. What he did not disclose was the fact that it Atal Bihari Vajpayee Government that blocked United Front Government's Cabinet decision of February 1997 to auction coal blocks till its exit in mid-2004. So both NDA & Congress-led UPA were partners in Coalgate.

Come now the subject of coal allocation to power plants. Mr. Modi's claim that imported coal was not given to power plants located near the coasts does not gel with the ground realty. The growing deficit in domestic availability of coal, coupled with Environment Ministry's stipulation to blend better-quality imported coal with indigenous one, has driven the sourcing of coal by power plants.

Imported coal at present gets transported right to power plants in Haryana and Punjab and a cement factory in Jammu & Kashmir. And this practice is expected to continue in future too.

Companies have the freedom to source coal from anywhere. In any case, Government does not allocate imported coal.

Bulk consumers of coal are always conscious of the freight advantage of sourcing coal from nearest mine. They forgo this advantage to avoid closure of their plants. Imported coal is a necessary evil for hinterland plants. It also needs to be noted that the concept of pithead-based power stations has been pursued for several decades.

Mr. Modi's claim on neem-coated urea is strange. Pointing out that 15-25% of subsidized urea is diverted to chemical plants, he described this "pilferage through the middlemen."

He stated: "This pilferage of urea cannot be stopped unless we go for cent per cent neem-coating of urea. Therefore, irrespective of the burden caused to the exchequer, we have accomplished the task of doing hundred per cent neem-coating of urea."

The fact is that NDA Government scrapped the cap of 35% of the total urea production by an plant as neem-coated urea in January 2015. In May 2015, the Government made it mandatory for all urea plants to produce only neem-coated urea. This decision has not caused any burden on the exchequer. It would rather reduce urea subsidy bill as neem-coated urea improves nitrogen availability to the crop. The farmer can thus apply 5-10% less neem-coated urea per acre as compared the standard prilled urea. Moreover, 5% premium for neem-coated urea over the price of prilled/plain urea is paid by farmers and not by the exchequer as subsidy.

According to Ministry of Agriculture, " Nutrient use efficiency of neem coated urea is about 5-10% higher than that of plain urea and, therefore, its use will economize the quantity of urea required by crops. Besides, coating of neem oil will also reduce the leaching of nitrates into the ground water and thus, help in reducing its pollution."

It is early to claim that illegal users of subsidized urea cannot have a technical solution to remove the neem coat. More important point to note is that neem-coating would not prevent smuggling of urea to other countries. Smuggling is highly lucrative as urea subsidy has reached almost 75% of the cost of production of urea. The statutory retail price of urea in India is one of the lowest in the world.

Mr. Modi neither spoke about smuggling nor about excessive use of over-subsidized urea, resulting in imbalanced application of all fertilizers. This, in turn, reduces the favourable/synergetic impact of nutrients on crops, leading to relatively lesser increase in yields. The Government itself has admitted that imbalanced usage of fertilizers is causing loss of several thousand crore of rupees. Like UPA, NDA too has found it politically risky to rationalize all nutrient and product-specific subsidies to optimize their application in national interest.

PM thus gave an erroneous description about fertilizers usage on the Independence Day. Mr. Modi has also been clever by half in announcing the decision to rename Ministry of Agriculture as "Ministry of Farmer Welfare." Instead of resorting to this tokenism, Mr. Modi should have told farmers as to why he is not honouring BJP's Lok Sabha poll promise to ensure a minimum of 50% profits over the cost of production. This promise is line with the very first goal of forgotten National Policy on Farmers (NPF) that was unveiled in September 2007.

A time-bound assurance to farmers on the status of implementation of BJP Poll promises & 28-page NPF would have carried more weight than name-change. Similarly, commitment to enactment certain legislation on farm issues especially long-pending bills on seeds and pesticides would benefit farmers more than name change.

PM apparently picked the idea of changing name of ministry from revised draft NPF recommended by National Commission on Farmers (NCF) in 2006. The revised draft stated: "The Ministry and Departments of Agriculture both in the Centre and States may be restructured to become Ministry / Department of Agriculture and Farmers' Welfare in order to highlight their critical role in ensuring the income and work security of over 600 million members of India's population."

UPA Government felt that the name change would be only cosmetic as the Ministry of Agriculture's policies and initiatives were meant to benefit farmers directly or indirectly.

Another distortion resulting from Mr. Modi's speech is about direct transfer of cash benefits into the bank accounts of beneficiaries. Mr. Modi has stolen thunder from this UPA's flagship initiative without acknowledging the legacy.

He stated: "We have put in place a scheme of direct benefit transfer of LPG (DBTL) subsidy" by linking it with Aadhaar Card and Jan Dhan accounts. This has helped the Government save subsidy leakage of Rs 15,000 crore that was pocketed by blackmarketeers.

UPA had launched DBTL in June 2013 and suspended it mid-way in January 2014 due to certain complaints from consumers as well as uncertainty over Aadhaar following certain observations made by the Supreme Court. NDA Government merely revived the implementation of DBTL.

As regards Mr. Modi's claim that his Government has taken steps to ensure that wages to workers under Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGA) go directly into their Jan Dhan accounts, the factual position is that the scheme mandates wages payment only through bank and post office accounts (excluding prior exemptions).

As early as March 2010 when UPA was in power, 8.60 crore bank and post office accounts had been opened for deposit of MGNREGA wages. The number of such accounts increased to 9.98 crore as on 1 st September 2014 when NDA was trying to settle down in the seat of power.

To put simply, the lion's share of credit for minimizing corruption/leakages in transfer of cash benefits to beneficiaries should go UPA. Mr. Modi should have acknowledged this fact keeping in view the spirit of 'Team India' that he swore by time and again in his speech.

As regards converting 44 labour welfare laws into four codes, Mr Modi claimed credit for this initiative. The fact is that it was recommended way back in 2002 by second National Labour Commission. The implementation of this recommendation got delayed due to divergent opinion of stakeholders during UPA-I regime. UPA-II revived the proposal after National Commission on Enterprises in the Unorganized Sector (NCEUS) reiterated the need for a National Labour Code. It was discussed at 44th session of Standing Labour Committee. UPA, however, apparently could not create consensus among participants.

The 4 labour codes have not yet gone through legislative process. The Ministry of Labour and Employment recently started the exercise of drafting four codes on wages, industrial relations, social security and welfare and safety & working conditions. It would have been better if Mr. Modi had announced a timeline for completion of this coding process.

Mr. Modi deserves complement for offering a sage proposal to link Government assistance (apparently sops) with employment to be generated by projects. The unemployed youth would eagerly wait for launch on promised schemes in this area.

PM's proposal to dispense with interviews for petty jobs at the Centre and States and select applicants on merit is, however, cruel joke on aspirants for such employment. The naked truth is that all Governments and their appendages largely outsource such jobs or the underlying services from private companies. Security and sanitary staff, clerks, personnel assistants, facility management services, provision of taxi service (in lieu of recruiting drivers) are invariably outsourced in all Union Ministries and their attached offices. Even computer engineers, doctors, teachers and other professionals are hired on contract in the Government domain.

Instead of offering this 'no interview' Jumla (empty promise), Mr. Modi should have indicated when it would end UPA's policy paralysis on National Employment Policy (NEP), which has been on the anvil since 2008.

Mr. Modi's speech has widened the gulf between billion dreams that he kindled during Lok Sabha elections and the prospects for their realization.