Good governance, a matter of perception or something tangible?

On the hot afternoon of 27th May 2014, the power inverter at my residence beeped five times denoting a power cut. A not so rare event in the Mumbai suburb I stay in, which is why almost 95% of the households in our city still have power inverters. As I got up to switch off the television, so as to prolong the power back up as I did not know how long the power cut would last, I blurted out “power cut in Modi’s tenure!”

Having voted for Narendra Modi and seen his eventful swearing in ceremony the previous evening, the power cut and my subsequent casual comment was a stark realization that it would take time and effort for the new government to address systemic issues like ensuring uninterrupted power supply to non metro cities like ours.

Now, three and a half years later, is it still the hope/perception that PM Modi is and would do better than the abject failures of the previous government, or is it the actual governance which still keeps the majority of us supporting him?

In an ideal world, this question should be raised and answered with the help of the fourth pillar – the media. Unfortunately in the modern days that is not possible, not just in our country but anywhere. While it is normal to expect personal opinions and political views of the journalists/reporters to sneak in to their work, what we are seeing in the last few years is outright political allegiance and quid pro quo arrangements. These behind the scenes activities and loyalties have severely hampered the credibility of all the news media outlets in our country.

Yes, social media has emerged as a decent alternative, which has also helped to expose many such deadly nexus between the political parties and the main stream media outlets, but even that medium is getting compromised. While it is no longer a cake walk for any government at the centre or in a state to cover up any of their major short comings, political parties have found a way to spin the narrative with regards to any or every major event.

All major political parties have a dedicated social media cell, which with the help of full time employees or part time consultants create memes, write articles on open forums or start a “#” on platforms like twitter to dictate the direction in which the “public” opinion goes in the aftermath of a major event. Some of them are even creating fake social media accounts with the help of bots to increase the number of mentions, shares, retweets and what not to give more credibility to the narrative they want to feed the masses and divide them further on lines of religion, right or left wing political ideologies, etc. More on this as we go along trying to answer the question – is good governance a matter of perception or something tangible and quantifiable?

I. Power sector

Cliché as it may sound, electricity is now a basic necessity for mankind. Yet, it was one of the most ignored and ill managed sectors for the last two decades. Ever since the Enron fiasco happened in Maharashtra, all governments dished out step motherly treatment to this sector for reasons best known to them. This obviously resulted in severe power shortages across the length and breadth of the country, wherein Maharashtra was one of the worst effected ones. Even though the suburb I stay in is barely 30kms from the Mumbai city limits, for years we had sticky notes on our refrigerator denoting the schedule of load shedding, which at its worst was in two slots a day of two and a half hours each. So, from the 16-17 hours one spent awake in a day, almost one third of it was without the access to electricity. This is when the business of power inverters and back up batteries mushroomed across the suburbs and the tiny lofts which we have in our apartments got even more cramped with our latest acquisitions which prevented us from melting down in the sweltering heat of Mumbai. If this was the situation in a semi urban area like ours, it was much worse in the rural areas and it not only impacted the households but also hampered their agricultural activities and other sources of earning their meager livelihood.

Despite such an alarming situation, it was resolved only after a decade and it’s only in the last few years that our refrigerators look much cleaner and we actually have to look at a clock for checking the time rather than the dreaded beeps of the power inverter informing us of the time of the day.

As the situation improved, it was only natural to see the newspapers and social media praising the former power minister Mr. Piyush Goyal and how the power sector was doing well under his leadership.

Narrative:

From the time the NDA came to power, the narrative around the power sector has been that it was largely ignored by the former government and it is the current government which has set it right. The jewel in the crown according to the government, has been the rural electrification as it has been a goal set out by the PM himself that all villages should be electrified by 2019. Another narrative has been that in 2017 we became a power surplus country, thus officially ending decades old basic problem of availability of uninterrupted power supply.

Facts:

As can be seen in the charts below, we are far from being a power surplus country if we see an average of 12 power cuts a month each lasting for an average of 50 minutes, translating to at least 10 hours spent without electricity across the country.

Unfortunately this data is not available prior to May 2016; hence a comparison with the performance of the earlier government is not possible. However, this does speak about the introduction of transparency in the reporting of power sector data which is a welcome move.

What makes the power cuts and their duration even more uncomfortable for people, is the chart here depicting the rise in cost of per unit of power for domestic usage. Compared to the tariffs prevalent from Aug’12 to May’15, power tariffs have been revised twice with the latest one being in Nov’16. While the tariffs have been increased across the board, the chart here only highlights the above poverty line tariffs for residential usage. For an average consumer using about 270 units of electricity a month, the total cost has gone up by a staggering 29% and this is despite suffering power cuts for 10 hours a month.

Moving on to the structural changes in this sector and talking about the jewel in the crown – rural electrification, here are the charts depicting the comparative progress.

As can be seen in the charts here, despite PM Modi making it a priority of his government, average number of villages electrified every month for the first two years of NDA is actually lesser than the monthly average achieved during the last two years of the UPA II.

Since as per definition, a village is deemed electrified even if only 10% of the households in it are using electricity, it is important to look at the number of households electrified to get a detailed understanding of real progress. The pie chart here is based on the limited statistics available around this.

Moving on, the chart here depicts the average power deficit our country has been facing. And we can see a huge decline in this from 7.10% (Apr11 to Mar14) to 2.08% (Apr14 to Mar17), clearly highlighting that while stastically we are yet to become a power surplus country, the efforts of the current government in clearing and initiating the stalled infrastructure projects are showing tangible results.

Conclusion:

While the pace of electrification of villages and households has picked up recently, it is not significantly different from the numbers scaled in UPA II. Coupled with the ongoing power cuts despite steep hike in domestic power tariffs, it would be only fair to say the ground reality is quite different from the impression being created on social media and even by some of the MSM channels.

The only silver lining during NDA’s term is the rapid decline in our power deficit during the first 60% of their scheduled tenure at the center.

II. Roads

Narrative:

From the first year itself, the NDA has been talking about the massive efforts it has put in to building the national highways. In addition to claiming the number of kilometers of the highway constructed every day has doubled or even trebled during its tenure, it has also publicized the value of road contracts awarded to private infrastructure companies. Let us look at some of the facts and figures for the former. As for the latter, it remains to be seen how long it takes for those projects to be completed and be ready for public usage.

Facts:

As can be seen in the chart above, there has been a major acceleration in the pace of the highway construction from the low point it had plundered to in the last year of UPA II. While the construction rate of 22.5 kms is roughly two thirds of what the government intended to achieve in FY2016-17, it is a little shy of twice the prevailing pace when NDA took over the reign in May 2014. This is a commendable shot in the arm this sector badly needed. And the fact it has been achieved while the Land Acquisition process is still in the doldrums makes this growth even more significant and gives the country a hope that once the process of land acquisition is sorted, we will see a further reduction in the gestation period of the major highway projects.

Having said all of the above, one factor which has been addressed partially in Maharashtra still remains a huge concern not just in the state but all over the country – the exorbitant and unfair toll charges being collected not just from transport vehicles but even the private car owners. After a huge agitation in various parts of Maharashtra, roughly 86 toll collection centers were de-notified by the alliance government led by the BJP after coming to power in the last assembly polls. However, on the whole this was a token relief as even now private car owners have to shell out roughly more than Rs. 1.5 per kilometer even decades after the toll collection was initiated and the project cost recovered.

And even when the infrastructure companies finish collecting these unrealistically high toll charges for the entire contracted period, such roads are intentionally not maintained up to the mark of a true national highway. NH3 which connects Mumbai to Nasik and other parts of central India is a classic case in point. Ever since the toll collection center near Mumbra completed its commissioned toll collection in April 2017, the road has developed craters and not just pot holes which often results in serpentine traffic snarls as vehicles carefully indulge in treasure hunting trying to find the smallest crater to negotiate. Who is responsible for this? Shouldn’t the NHAI and the central government look into this as the movement of transport vehicles directly impacts the country’s economy and safety of commuters, especially the riders from nearby rural areas?

Moving on to a factor equally or even more important – pace of construction of rural roads. And just like with the national highways, while neither of the governments might have achieved the targetted rate of construction, there has been a significant growth of 68% in the daily average of roads being constructed in the rural areas since FY 2013-14. The dual socio-economic importance of this feat in terms of connecting the hinterland with the rest of the country will surely reap benefits for the economy and politically for the government come next elections.

Conclusion:

While the significant improvement in the rate of construction of national highways and rural roads is a feather in the cap for the government’s efforts in improving the transport infrastructure of the country (including the recently announced Bharatmala project), there are outstanding issues with the quality of the roads which the government needs to work on either directly, or by directing the state governments and the local bodies. This can be started at least in the states and cities where their own party is in the government or in an alliance.

III. Terrorism

Narrative

The opposition parties and some of the MSM outlets have been claiming the unrest in sensitive areas like the J&K and the entire North East has gone up significantly since the time NDA came to power. They also claim that more security forces and civilians have lost their lives as a result.

Facts

Let’s start by looking at the overall numbers on terrorism related deaths of civilians, security forces and of course the terrorists themselves. Thereafter, we will look at the two major conflict theaters – J&K and the Left wing terrorism or Naxalites in the North East.

As can be seen the chart here, there has been a 10% reduction in the annual average number of fatalities between June 2014 to September 2017 compared to the period of January 2011 to May 2014. What makes this number even better is the fact that while the average fatalities of civilians and security forces have gone down by 31% and 2% respectively, the average number of terrorists neutralized during this tenure has gone up by 5%.This clearly highlights the accuracy of the intelligence inputs and the coordination with which the ground forces plan and execute the operations which minimizes the risk to the civilians.

Moving to the unrest in Jammu & Kashmir, which saw a significant up move in the aftermath of the killing of Hizbul commander Burhan Wani in July 2016, has seen our Army go on a rampage against the terrorists cells within the valley and those coming from across the border.

The statistics here suggest that while there has been an increase of 24% and 73% in the fatalities of civilians and security forces respectively, there has been a 48% increase in the number of terrorists being neutralized too. The unfortunate rise in the civil and security forces casualties seems unavoidable in some hostile pockets of the state where the locals usually provide a cover to the terrorists either by allowing them to take shelter in their homes or by attempting to block the operations of the security forces.

On the whole, the situation in Kashmir seems to be improving in the last few months and looks like the government will come through on its claims of stabilizing the region by the end of 2017.

Moving on to the left wing extremism or naxalite movement as it is more popularly known in the North Eastern corridor of the country, the statistics here are not entirely in favour of the government.

While there has been a commendable reduction of 20% in the overall fatalities, the rate of security forces being killed in line of action has gone up by 10%. This is even more disturbing given the fact the number of terrorists being killed has gone down by a staggering 25%. The only silver lining is a 17% reduction in the number of fatalities suffered by the civilians.

While the overall number of terrorists being neutralized might look grim, the 35% rise in the terrorist leaders being killed, arrested or surrendering themselves is surely welcome news from the infamous red corridor. Furthermore, the action taken on leaders shows a direct correlation in the form of 47% rise in the terrorists surrendering themselves.

Conclusion

Looking at all these facts, the NDA government should be given full credit on how they are not only handling the tense situations in these volatile regions but also on the surgical offensive they have unleashed and the results it is showing.

However, one factor which the government needs to look at more proactively is to launch more preemptive surgical strikes on terror outfits outside our borders rather than launching them only as a retaliation to cross border firing or a terrorist attack in our country.

Note: All the numbers reported in this section are annual averages. Numbers for 2014 have been interpolated in two parts – Jan to May and June to Dec.

IV. Taxes

By far the only thing which keeps running uninterrupted in our country.

Narrative

Since time immemorial we have been talking about rationalizing our taxes. And since at least 2009 we have been talking about implementing the Direct Tax code which would achieve the much needed objective of over hauling our taxation system. In the interim budget of 2008-09 before the country went to ballot, the government promised to introduce the direct tax code which would raise the tax exempted income to as high as Rs. 8 lakhs from the then prevailing exemption of Rs. 1.5 lakhs. Some sources even pegged this exemption at a million rupees. It was only after the government returned to power and put the implementation of the Direct Tax code on the back burner in the form of consultations, standing committees, etc. did the people realize that it was another hollow promise made to win over its vote.

Facts

Almost a decade later, the Direct Tax code still hasn’t seen the light of the day.

While our country might not be amongst the ones with the highest amount of taxes, it is also not in the list of the ones who provide health care and social security to the majority of its population. Taking that into account, we surely are taxed way too high with almost negligible ROI. While high taxation affects everyone, the worst affected ones are the direct tax payers. And amongst them the salaried middle class are even worse off. Not only is their tax deducted even before they get paid, they also have fairly limited avenues to invest in for bringing down the amount of taxes they pay.What breaks their back further, are all the indirect taxes which they have to pay from the post tax income.

Now the primary idea behind indirect taxes, especially in a country like ours where there is a huge parallel economy, was to tax the people who do not pay their true share of direct taxes. Hence, it makes sense to tax them indirectly when they buy any goods or avail of services. However, in this process the direct tax payers end up being penalized twice. An average middle class direct tax payer who dines out once a month, spends about Rs. 2,000 a month on phone and internet, catches up on a movie once in a while, ends up paying an additional one fourth of his total tax liability in the form of service and other indirect taxes.

Based on the above, we should not be surprised that despite the moves like amnesty schemes and demonetization, there are only 2.5 crore income tax payers. So, 1.92% of our population carries the burden of contributing 26% of our overall tax revenue (21% in the form of direct taxes and roughly 5% as indirect taxes).

All of the above is fairly well known to the entire country and all the governments till date, so the need for making the system fair is obviously not proving to be a good enough reason for providing some relief to the unfortunate class of direct tax payers. Hence, let us look at another aspect which might just have enough appeal.

Sources for all the tax related data:

1) www.mospi.gov.in
2) http://www.thehindubusinessline.com/economy/direct-tax-collection-falls-short-by-14-in-201415/article7167232.ece
3) http://indianexpress.com/article/business/economy/fy16-indirect-tax-collection-govt-mops-up-rs-7-09-lakh-crore-beats-revised-estimates/
4) https://m.timesofindia.com/business/india-business/Tax-collection-in-2015-16-exceeds-target-by-Rs-5000-crore/articleshow/51718111.cms
5) www.incometaxindia.gov.in
6) https://economictimes.indiatimes.com/news/economy/finance/direct-tax-collection-up-19-in-apr-july-at-rs-1-90-lakh-crore/articleshow/59989987.cms

Way Forward

Our economy is grappling with a slow-down, and as a result, the government is looking at RBI for reducing the interest rates, which they feel will be the shot in the arm the economy badly needs. The central bank on the other hand has its rightful share of reasons for not obliging. This leaves the government with no choice but to loosen their hold on fiscal deficit, which they have kept diligently under control ever since they took over. However, to ensure they don’t go down the same road as the former government in terms of doling out inflationary stimulus packages which not only fires up the inflation but also negatively impacts the fiscal position, the government has to look for increasing their share of tax revenues which they can then deploy in avenues that can bear the maximum result for them.

One such way to do this is to widen the tax base, something which the government has already acknowledged and taken steps to address, with the latest addition being the panel set up for overhauling the Income Tax Act. Thus, (at the risk of being prejudiced to expect and suggest this) I feel it does look more sensible at this stage to introduce a cut in the personal income tax rates. This move would not only leave more disposable income in the hands of the people, which would naturally benefit the economy for one, in the higher indirect tax revenues when this money is spent for satisfying leisurely requirements.

Not to mention the positive impact this could have on the investment from the industry, when they see increasing spending power and resultant demand in the economy, which would further lead to job creation and possibly to a reduction in the NPAs on the banks’ balance sheets as the struggling businesses are revived due to a buoyant growth phase in the demand cycle. Even if majority of people do not spend their windfall gains from the lowered tax rates, they would end up saving it. And majority of them would save it in the form of deposits with their banks, thus helping the ailing lenders to improve their balance sheets.

Furthermore, lowered tax rates would also positively impact the overall tax compliance in the country, thus resulting in the government achieving its objective of widening the tax base, providing relief to the over burdened existing tax payers (if ever that was a consideration), and stimulating the economy. All of this without a major disturbance to its rapidly improving fiscal numbers.

Budget after budget the tax payers have been left empty handed. If this continues even in the next budget (the last full one before the 2019 elections), the political implications of this should not be lost on the government. Because they need to realize, while the middle class largely feels there is no alternative to NDA at least in the 2019 elections, they would not mind abstaining from casting their vote if they feel even this government does not care about them. If that happens, it would leave the election to be largely decided by the economically affluent and lower income sections of the society. The former lacks numerical strength to swing any nationwide election (not to mention they are virtually non-existent as per the tax filings and collections at least). As for the latter, rightly so I might add, tend to get frustrated with the incumbent government and vote for a change quicker than their middle class counterparts (their struggle with demonetization was also more pronounced which could act as a stimulant to vote for a change).

Conclusion

If the above turns out to be true, the government would have only themselves to blame for messing up an otherwise guaranteed victory, by yet again ignoring the class of voters who are not only the most informed and least prejudiced, but also bear the responsibility of keeping this country running by paying their taxes diligently and playing an important part in the overall economic development of the country. And so far, irrespective of the narrative peddled, they have surely been ignored and burdened with the rising power costs (which is being used to dole out free electricity to certain sections) coupled with power cuts, expensive and yet inferior quality of roads and token respite in taxation.

The larger picture of the structural changes this government is willing to implement is not lost on the middle class voters. Especially the commendable work the government is doing in reducing corruption, regulatory changes to help the banks recover their NPAs, improving foreign relations, defending the nation against the erring neighbors on both the eastern and western frontiers is surely being noticed by everyone as a tangible result and not just as a perception change driven by narratives.

However, the middle class voters have spent a better part of the last two decades awaiting acknowledgement and rightful share of benefits for their unmatched efforts in nation building. It is high time this historic wrong is set right.

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