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Type: Op-ed

  • An unquiet neighbourhood

    The article highlights the inherent difficulty in finding a solution to the two conflicts raging on in India’s neigbourhood.

    Tale of two conflicts in neighbourhood

    • Efforts to end two major conflicts in India’s neighbourhood have become intense.
    • To the west, a peace summit on Afghanistan, seeking to end decades of conflict there, was also scheduled to take place in Istanbul over the weekend.
    • To the east, the Association of Southeast Asian Nations (ASEAN) has produced a diplomatic opening with Myanmar’s military leadership.
    • Afghan conflict go back to the late 1970s; since then we have seen different phases of the conflict.
    • Although the crisis in Myanmar appears recent, the tension between civil-military relations is not new.
    • Back in 1988, the army annulled the huge mandate won by Aung San Suu Kyi and unleashed massive repression.

    3 Common Themes in the effort at peace and reconciliation

    1) Ending violence

    • The first is about ending violence.
    • In Afghanistan it has been near impossible to get a resurgent Taliban to agree to stop its attacks on government forces or the civilian population.
    • The ASEAN initiative in Myanmar calls for an immediate cessation of violence and utmost restraint from all sides.
    • The opposition demanding restoration of democracy might find this rather ironic, since it is the army that is employing violence and has shown scant restraint.

    2) Dialogue among all parties

    • The second theme in the ASEAN initiative — “constructive dialogue among all parties” to “seek a peaceful solution” — is also common to all peace processes.
    • The Taliban found all kinds of excuses to delay a dialogue with the Kabul government that it always saw as illegitimate. So far, it has avoided one.
    • In Myanmar, the army might be ready to engage the opposition in a prolonged dialogue and defuse international pressure; but it will be hard for the victims of the coup to accept a dialogue on the army’s terms.

    3) Third-party mediator

    • The Afghan conflict has long been internationalised.
    • All major powers, including regional actors and neighbours, have acquired stakes in the way the Afghan conflict is resolved.
    •  This unfortunately makes the construction of an internal settlement that much harder.
    • In Myanmar, the ASEAN has set the ball rolling by agreeing that a special envoy will be traveling to the region and will engage with all parties to the conflict.

    Cost-benefit in diplomacy

    • The US is hoping that the Taliban will moderate some of its hardline positions given its need for significant international economic assistance for reconstruction, political legitimacy.
    • In Myanmar, too, the international community will hope the military would want to avoid the risks of political isolation and economic punishment.
    • But how the Taliban and the Myanmar army calculate these costs and benefits could be very different.
    • Both have long experience of surviving external pressure and enduring sanctions.

    Conclusion

    Few civil wars have seen the kind of massive external effort to change the internal dynamics as in Afghanistan; but to no avail. In Myanmar, it is not clear how far the international community might go. The prospects for positive change in Afghanistan and Myanmar, then, do not look too bright in the near term.

  • Civil service reforms in India

    The article highlights the role bureaucracy can play in the development of the country and suggests the ways to deal with the challenges faced by the bureaucracy.

    Background of the PSU’s

    • In the 1950s and ’60s, the private sector had neither the capability to raise capital to take the country on the path of industrialisation.
    • The state had to take on the role of industrialising the country by establishing PSUs.
    • The civil services became the natural choice for establishing and managing these units.
    • They delivered substantially, if not fully.
    • Even after privatisation, the bureaucracy would be required for the transition of PSUs from the public to the private sector.

    Need for structural transformation agenda

    • The goal of making India a $5-trillion economy needs a coherent structural transformation agenda and extraordinary implementation capacity.

    1) Dealing with crony capitalisms

    • Since Independence, the political survival of Indian regimes has required pleasing a powerful land-owning class and a highly concentrated set of industrial capitalists.
    • The elites of business houses and land owners share no all-encompassing development agenda.
    • Can the present regime find a way out of this conundrum?

    2) Implementing the development agenda

    • While the agenda is an outcome of political choices, the thinking goes that market mechanisms should be used as far as possible to make economic choices.
    • This argument is at the heart of the privatisation of state assets.
    • However, markets operate well only when they are supported by other kinds of social networks, which include non-contractual elements like trust.
    • Particularly in industrial transformation, there must be an essential complementarity of state structures and market exchange.
    • Only a competent bureaucracy can provide this.
    • It is for this reason that Max Weber argued that the operation of large-scale capitalist enterprise depended upon the kind of order that only a modern bureaucratic state can provide.

    3) Removing the constraints on the bureaucracy

    • The political and permanent executives had to work as a team through mutual respect for each other’s roles as defined in the Constitution.
    • Every deviation from these ideals has lowered the capacity of the state to deliver.
    • This is the result of electoral politics where the essence of the state action is the exchange relationships between the incumbent governments and its supporters.
    • All this is achieved by undermining the impartiality of the bureaucracy in implementing rules and giving opinions frankly.
    • The power to transfer is weaponised to bring the bureaucrats to heel and it works because authority sits with the position not the person.
    • The pressure on officials to behave contrary to the ostensible purpose of the department undermines to a great extent the ability of the state to promote development.
    • If privatisation is to work, then the corruption-transfer mechanism and its effects on the bureaucracy has to go.

    4) Corporate coherence

    • Corporate coherence is the ability of the bureaucracy internally to resist the invisible hands of personal maximisation by undercutting the formal organisational structure through informal networks.
    • If this goes too far, then everything becomes open to sale and the state becomes predatory.

    Consider the question “What are the issues facing civil services in India? Suggest the ways to deal with these issues.”

    Conclusion

    We need to fight the increasing tendency to grab public resources and restore to the bureaucracy its autonomy of action as envisaged in the Constitution by de-weaponising transfers.

  • Microfinance Institutions

    The article highlights the important role played by the microfinance sector in furthering financial inclusion in India and suggests measures to achieve holistic development of the sector.

    Important role played by microfinance

    • No other form of financial services has had the kind of far-reaching impact, in terms of fostering financial inclusion, as microcredit has.
    • Access to small, collateral-free loans for economically productive purposes has helped transform the lives of millions at the bottom-of-the-pyramid—especially women.
    • Over the past decade, India’s microfinance industry has grown at a compound annual growth rate of 26% to reach ₹2.36 trillion.
    • It has helped 50 million economically vulnerable Indians, 99% of them women, live a life of dignity and financial independence.
    • Assuming that these 50 million people who took a loan to start a small business employed at least one other person, it translates into 50 million additional jobs in the country.
    • This creates a ‘network effect’ that has a social impact at scale.

    Evolution of microfinance industry

    • Recommendations of the Malegam Committee, which became regulations, and practices such as relying on credit bureau data to assess a borrower’s creditworthiness have helped the industry immensely.
    • The vital role that microfinance plays in the last-mile delivery of financial services was acknowledged.
    • Subsequently, eight out of the 10 small finance bank licences granted were also given to microfinance institutions.
    • RBI has sought to undertake a comprehensive review of the sector again, after 10 years, to better align the regulatory framework with the sector’s current realities.

    Steps for development of sector

    • First, Entities should promote financial literacy through group meetings of borrowers.
    • Second, organizations should complement their microcredit operations with social development projects and community-connect initiatives.
    • Third, prospective borrowers’ indebtedness and ability to repay dues should be assessed properly.
    • Fourth, loans must be given only for income-generation purposes.
    • Fifth, every microfinance organization should devote time and resources for capacity building at the grassroots.
    • Sixth, rather than focusing on taking over the existing debt of a borrower, or lending to her further, institutions should focus on bringing new-to-credit customers into the fold.

    Consider the question “How can microcredit stimulate financial inclusion in India? Suggest the measures for the development of microfinance sector in India.”

    Conclusion

    There is much more that we, as a nation, collectively need to do in order to bring a vast population of unbanked and underbanked Indians into the fold of formal financial services.

  • Need to address the systemic issues plaguing the judiciary

    The article highlights the issues facing the judiciary in India and emphasises the need for addressing these issues.

    Separating judiciary from the executive

    • Today, the judiciary, especially the SC, is called upon to decide a large number of cases in which the government has a direct interest.
    • These can be politically sensitive cases too.
    • The framers of the Constitution understood the importance of the oath of office of judges of the Supreme Court of India (SC) and carefully designed its language.
    • The words, “without fear or favour” to “uphold the constitution and the laws” are extremely significant and stress the need for a fiercely independent court.
    • Article 50 of the Constitution provides: “The State shall take steps to separate the judiciary from the executive in the public services of the State.”

    Master of roaster issue

    • The Chief Justice of India is the first amongst the equals but by the virtue of his office assumes significant powers as the Master of the Roster to constitute benches and allocate matters.
    • The SC has re-affirmed this position in a rather disappointing decision in Campaign for Judicial Accountability and Reforms v. Union of India, (2018).
    • The result has been catastrophic.
    • Many matters were either treated casually or deflected for no reason from serious hearing.

    Accountability from legislature and executive

    • The SC is expected to seek strict accountability from the legislature and executive and any infraction of the Constitution and laws must be corrected.
    • Yet, this is not happening.
    • A country of billion-plus needs its highest court to stand for the people, not seemingly for the executive of the day.

    Inherent and fundamental challenges

    • The judiciary is besieged by inherent and fundamental challenges.
    • Millions of pending cases, quality of judges and their decisions, organisational issues and its integrity and impartiality, need urgent attention.
    • Yet, in the last two decades precious little has been done.
    • Justice is eluding the common man, including the vulnerable sections of society.

    Way forward

    • The new Chief Justice must seriously introspect and free himself of the bias in constituting benches and allocating cases and take concrete steps to revitalise the administration of justice.
    • Only then will the rule of law be restored and the Constitution served.

    Consider the question “Examine the inherent and fundamental challenges faced by the judiciary in India. Suggest the measures to deal with these challenges.” 

    Conclusion

    The Chief Justice of India on account of the position he holds as paterfamilias of the judicial fraternity, was suspected by none other than Dr B R Ambedkar. Let us hope the new Chief Justice makes serious efforts to prove otherwise.

  • Data and a new global order

    Digital data revolution

    • The Industrial Revolution restructured the global manufacturing order to Asia’s disadvantage.
    • But in the ‘Digital Data Revolution’, algorithms requiring massive amounts of data determine innovation, the nature of productivity growth, and military power.
    • Mobile digital payment interconnections impact society and the international system, having three strategic implications.

    3 implications of mobile digital payment interconnections

    1) Symbiotic nature of military and civilian system

    • Because of the nature and pervasiveness of digital data, military and civilian systems are symbiotic.
    • Cybersecurity is national security, and this requires both a new military doctrine and a diplomatic framework.

    2) Productivity advantage of data to Asia

    • The blurring of distinctions between domestic and foreign policy and the replacement of global rules with issue-based understanding converge with the growth of smartphone-based e-commerce, which ensures that massive amounts of data give a sustained productivity advantage to Asia.

    3) India can negotiate new rules as an equal with US and China

    • Data streams are now at the centre of global trade and countries’ economic and national power.
    • India, thus, has the capacity to negotiate new rules as an equal with the U.S. and China.

    How data shaped US-China relations

    • Innovation based on data streams has contributed to China’s rise as the second-largest economy and the “near-peer” of the U.S.
    • The national security strategy of the U.S. puts more emphasis on diplomacy than military power to resolve conflicts with China, acknowledging that its military allies have complex relationships with Beijing, as it seeks to work with them to close technology gaps.
    • China’s technology weakness is the dependence on semiconductors and its powerlessness against U.S. sanctions on banks, 5G and cloud computing companies.
    • But China’s digital technology-led capitalism is moving fast to utilise the economic potential of data, pushing the recently launched e-yuan and shaking the dollar-based settlement for global trade.

    How global strategic balance will be shaped by data standard

    • China has a $53-trillion mobile payments market and it is the global leader in the online transactions arena, controlling over 50% of the global market value.
    • India’s Unified Payments Interface (UPI) volume is expected to cross $1 trillion by 2025.
    • The U.S., in contrast, lags behind, with only around 30% of consumers using digital means and with the total volume of mobile payments less than $100 billion.
    • The global strategic balance will depend on new data standards.
    • The U.S., far behind in mobile payments, is falling back on data alliances and sanctions to maintain its global position.

    India’s role in digital economy

    • With Asia at the centre of the world, major powers see value in relationships with New Delhi.
    • India fits into the U.S. frame to provide leverage.
    • China wants India, also a digital power, to see it as a partner, not a rival.
    • And China remains the largest trading partner of both the U.S. and India despite sanctions and border skirmishes.

    Way forward for India

    • India, like China, is uncomfortable with treating Western values as universal values and with the U.S. interpretation of Freedom of Navigation rules in others’ territorial waters.
    • New Delhi’s Indo-Pacific vision is premised on “ASEAN centrality and the common pursuit of prosperity”.
    • The European Union recently acknowledged that the path to its future is through an enhanced influence in the Indo-Pacific, while stressing that the strategy is not “anti-China”.
    • The U.S. position in trade, that investment creates new markets, makes it similar to China’s Belt and Road Initiative.

    Conclusion

    India alone straddles both U.S. and China-led strategic groupings, providing an equity-based perspective to competing visions. It must be prepared to play a key role in moulding rules for the hyper-connected world, facing off both the U.S. and China to realise its potential of becoming the second-largest economy.

  • Why single price of vaccine across the country is good idea

    The article deals with the issues of different prices set for the Covid vaccine and its implications.

    Understanding the positive and negative externalities

    • Vaccines have a positive externality; it is a good whose consumption benefits not just the one who has it.
    • A vaccinated person is not only relatively protected against the disease himself/herself, but also less likely to transmit it to others.
    • Usually, a person getting vaccinated takes into account only his/her own cost and benefit, while ignoring the fact that he/she lowers the chances of infecting others.
    • It is the opposite of smoking, which has “negative externality”.
    • Since every individual ignores the full set of benefits/costs from consuming goods with positive/negative externalities, the market isn’t always the most efficient mechanism for allocation of such goods.
    • That is a key reason why governments treat goods having large positive externalities as “public goods” and provide these while factoring in the full costs and benefits to society.

    Analysing the issues with vaccine policy

    1) Vaccine inequality

    • It requires vaccine manufacturers to supply 50 per cent of their production to the Centre at controlled prices, while allowing them to sell the remaining half in the open market including to state governments at pre-announced “self-set” prices.
    • To start with, the new policy can lead to differential access to the vaccine.
    • Manufacturers are supposed to “transparently declare” their prices in advance for their 50 per cent supply to the open market.
    • But there is no limit per se on the retail price they would charge.
    • This could lead to a whole range of prices and vaccine inequality, apart from diversion of supplies from the controlled low-price government centres to the open market.
    • So, we may well have scarcity in the “mass” segment co-existing with a glut in the “elite” segment.
    • There is also concerns about economic efficiency and the potential for market failure.

    2) Economic efficiency and potential for market failure

    • Imagine there are two sets of people in India.
    • The first consists of those who are better off and can afford to stay back or work from home.
    • This lot is also less likely to cause infection to others.
    • The second set is mostly blue-collar workers, small traders, vendors and agriculturists.
    • The nature of their work — on the shop floor or in the field — makes them naturally prone to infect others.
    • It follows, then, that society gains from first vaccinating the latter, as they have a higher negative externality.
    • The market will ignore those with lower purchasing power, despite them having a higher probability of spreading the disease.
    • In fact, the bigger the income difference between the two segments, the greater will be the extent of market failure from simultaneous over-provisioning and under-provisioning.

    Way forward

    • The solution could be a single price to be paid to vaccine makers for all the doses that they supply.
    • The price should be high enough to stimulate them to rapidly ramp up production.
    • Those government should pay directly to the vaccine maker or the hospital administering the dose for those without sufficient means.
    • The suggested solution is similar to the fertiliser subsidy, which is now disbursed to companies only after actual sales to farmers.

    Consider the question “What policy should be followed for the vaccination in the country? What are the issues with the curent policy which involved different price for government and for open market.”

    Conclusion

    A single price for Covid-19 vaccines will stimulate production, ensure efficient vaccination.

  • Very few post-vaccine infections

    Breakthrough infection

    • ICMR said that a small fraction of those vaccinated with either Covaxin or Covishield have tested positive (i.e. breakthrough” infections).
    • However, these instances do not undermine the efficacy of the vaccines.
    • The immune response begins to develop usually two weeks after every dose and there are variations within individuals, too.
    • Of the 9.3 million who received the first dose of Covaxin, 4,208 tested positive; and of the 1.7 million who received the second dose, 695 tested positive.
    • For Covishield, of the 100.3 million who received the first dose, 17,145 tested positive; and of the 15 million who got the second dose, 5,014 tested postive.

    What explains infections after vaccination

    • Healthcare and frontline workers, who were among the first to be vaccinated, were as a population far more exposed to the virus and therefore more susceptible.
    • Secondly, the emergence of “the highly transmissible second wave (newer variants) ” may have contributed to instances of infection among those vaccinated.
    • Several variants, which have mutations that have been shown to avoid detection by the immune system, and in some cases reduce the efficacy of vaccines, have been reported globally, including in India.

  • Strengthening the process of choosing the police chief

    The article suggests the need for reforms in the process of appointment to the police chief to ensure the political neutrality of the police.

    Process of appointing and removing police chief

    •  A crucial way in which governments exercise control over the State police is through their unregulated power to decide who the chief will be.
    • There is no independent vetting process to assess the suitability of qualified candidates, and the government’s assessment, if it is done at all, remains opaque and is an exercise behind closed doors.
    •  The moot reform issue is in ensuring the right balance between the government’s legitimate role in appointing or removing the police chief with the need to safeguard the chief’s operational autonomy.

    Need for reforms

    Two elements are vital to reforms in this area.

    1) Shift the responsibility to independent oversight body of which government is one part

    • The National Police Commission (NPC) (1979), and the Supreme Court in its judgment in 2006, in the Prakash Singh case suggested establishing a state-level oversight body with a specified role in the appointment and removal of police chiefs.
    • While the Supreme Court entrusted the Union Public Service Commission (UPSC) with a role in shortlisting candidates from which the State government is to appoint the police chief.
    • However, the Model Police Bill, 2015 places the responsibility with a multiparty State Police Board, also referred to as the State Security Commission (SSCs) instead.

    No compliance with SC directive in the formation of SSC

    • While 26 States and the Union Territories have established SSCs, not a single one adheres to the balanced composition suggested by the top court.
    • Some do not include the Leader of the Opposition; others neither include independent members nor follow an independent selection process of the members.
    • In essence, the commissions remain dominated by the political executive.
    • Moreover, in as many as 23 States, governments retain the sole discretion of appointing the police chief. Assam, Jharkhand, Karnataka, Meghalaya and Mizoram are the only States where, on paper, the SSC is given the responsibility of shortlisting candidates.

    2) Need for transparency

    • The second element critical to police reforms is instituting an independent and transparent selection and decision-making process around appointment and removal, against objective criteria.
    •  On appointments, the Court and the Model Police Act require the UPSC/SSC to shortlist candidates on the basis of length of service, service record, and range of experience and a performance appraisal of the candidates over the past 10 years.
    • However, no further guidance has been developed on explaining these terms or specifying their elements.
    • Similarly, no scrutiny process has been prescribed to justify removals from tenure posts.
    • The National Police Commission had required State governments to seek the approval of the State Security Commission before removing the police chief before the end of term.
    • This important check was diluted under the Prakash Singh judgment that only requires governments to consult the SSC.
    • Most States omit even this cursory step.
    • The Supreme Court has rightly emphasised that “prima facie satisfaction of the government” alone is not a sufficient ground to justify removal from a tenure post in government, such as that of the police chief (T.P. Senkumar vs Union of India, 2017).
    • The rule of law requires such decisions be for compelling reasons and based on verifiable material that can be objectively tested.

    Way forward

    • Clear and specific benchmarks need to be integrated into decision-making processes, both on appointments and removals, to prevent politically motivated adverse actions.
    • In improving transparency the United Kingdom provides a useful example by introducing public confirmation hearings as an additional layer of check for the appointment of the heads of their police forces.

    Consider the question “Examine the status of compliance of the states to the directives of the Supreme Court with respect to the constitution of State Security Commission in the Prakash Singh case.”

    Conclusion

    Reforms are needed on urgent to ensure fairness in administrative decisions and to protect the political neutrality of the police. Any further delay in implementing reforms in this area will continue to demoralise the police and cripple the rule of law.

  • A fresh push for green hydrogen

    Green hydrogen could help significantly in India’s transition to low carbon future. However, there are several challenges in ramping up its manufacturing. The article suggests measures to deal with these challenges.

    Increasing the production of green hydrogen

    • India will soon join 15 other countries in the hydrogen club as it prepares to launch the National Hydrogen Energy Mission (NHEM). 
    • India will soon join 15 other countries in the hydrogen club as it prepares to launch the National Hydrogen Energy Mission (NHEM). 
    • In 2030, according to an analysis by the Council on Energy, Environment and Water (CEEW), green hydrogen demand could be up to 1 million tonnes in India across application in sectors such as ammonia, steel, methanol, transport and energy storage. 

    Dealing with challenges

    Several challenges in scaling up to commercial-scale operations persist. Following are five recommendations.

    1) Decentralise green hydrogen production

    • Decentralised hydrogen production must be promoted through open access of renewable power to an electrolyser (which splits water to form H2 and O2 using electricity).
    • Currently, most renewable energy resources that can produce low-cost electricity are situated far from potential demand centres.
    • Producing oxygen at such locations and then shipped, it would significantly erode the economics of it.
    • A more viable option would be wheeling electricity directly from the solar plant.
    • However, the electricity tariffs could double when supplying open-access power across State boundaries.
    • Therefore, operationalising open access in letter and spirit, as envisioned in the Electricity Act, 2003, must be an early focus.

    2)  Ensure access to round-the-clock renewable power

    • To minimise intermittency associated with renewable energy, for a given level of hydrogen production capacity, a green hydrogen facility will store hydrogen to ensure continuous hydrogen supply.
    • Therefore, as we scale up to the target of having 450 GW of renewable energy by 2030, aligning hydrogen production needs with broader electricity demand in the economy would be critical.

    3) Blending green hydrogen in industrial sector

    • We must take steps to blend green hydrogen in existing processes, especially the industrial sector.
    • Improving the reliability of hydrogen supply by augmenting green hydrogen with conventionally produced hydrogen will significantly improve the economics of the fuel.
    • This will also help build a technical understanding of the processes involved in handling hydrogen on a large scale.

    4) Facilitate investment

    • Policymakers must facilitate investments in early-stage piloting and the research and development needed to advance the technology for use in India.
    • The growing interest in hydrogen is triggered by the anticipated steep decline in electrolyser costs.
    • Public funding will have to lead the way, but the private sector, too, has significant gains to be made by securing its energy future.

    5) Focus on domestic manufacturing

    •  India must learn from the experience of the National Solar Mission and focus on domestic manufacturing.
    • Establishing an end-to-end electrolyser manufacturing facility would require measures extending beyond the existing performance-linked incentive programme.
    • India needs to secure supplies of raw materials that are needed for this technology.
    • Further, major institutions like the DRDO, BARC and CSIR laboratories have been developing electrolyser and fuel-cell technologies.

    Consider the question “Even before it has reached any scale, green hydrogen has been anointed the flag-bearer of India’s low-carbon transition. In lights of this, examine the challenges India faces in scaling up its green hydrogen production and suggest the ways to deal with these challenges.”

    Conclusion

    Hydrogen may be lighter than air, but it will take some heavy lifting to get the ecosystem in place.

  • Employee State Insurance Scheme and Employee Provident Fund

    The idea of welfare state

    • Covid reminds us that a modern state is a welfare state as governments worldwide launched 1,600 plus new social protection programmes in 2020.
    • Sustainable social security lies in raising India’s 138th ranking in country per-capita GDP.
    • However, on the social security schemes, there is a case for three reforms to our biggest health insurance and pension schemes:
    • These schemes are the Employee State Insurance Scheme (ESIS) and Employee Provident Fund (EPF).

    Issues with ESIS

    • The Employee State Insurance Scheme (ESIS) is India’s richest and biggest health insurance scheme with 13 crore people covered and Rs 80,000 crore in cash.
    • Employers with more than 10 employees make a mandatory 4 per cent payroll deduction for employees earning up to Rs 21,000 per month.
    • Despite covering roughly 10 per cent of India’s population, a recent working paper from Dvara Research suggests high dissatisfaction.
    • The constraint is hardly resources: ESIC’s unspent reserves are larger than the Central government’s healthcare budgetary allocation.

    Issues with EPF

    • EPF is India’s biggest pension scheme with a Rs 12 lakh crore corpus and 6.5 crore contributors.
    • Employers with more than 20 employees make mandatory 24 per cent payroll deductions for employees earning up to Rs 15,000 per month.
    • It only covers 10 per cent of India’s labour force and 60 per cent of accounts and 50 per cent of registered employers are inactive.
    • EPF offers poor service and pathetic technology despite employer-funded administrative costs that make it the world’s most expensive government securities mutual fund.

    Updating the risk-sharing frameworks in society

    • In a book titled What We Owe Each Other: A New Social Contract, Nemat Shafik suggests updating the risk-sharing framework in societies.
    • This is because current structures are breaking up under the weight of changes in the role of women, longer careers, technology, globalisation, and much else.
    • She suggests a more nuanced social security redistribution across time (the piggy bank function), incomes (the Robin Hood function), and financial burden-bearing (the state, individuals, or employers).
    • In India, the answer lies in fixing the problems of EPF and ESIS.

    Solution to the EPF and ESIS problems

    • Both suffer from poor coverage, high costs, unsatisfied customers, metrics confused with goals, jail provisions, excessive corruption, low expertise, rude and unaccountable staff with no fear of falling or hope of rising, and no competition.

    Let’s look at possible solutions.

    1) Structure

    • EPF and ESIS combine the roles of policymaker, regulator, and service provider.
    • Splitting roles is a precondition for performance because goals, strategy, and skills are different.
    • An independent policymaker horrified with only 6 lakh of India’s 6.3 crore enterprises covered would create competition.
    • An independent regulator terrified by ESIS overcharging would frown on a claims ratio of less than 75 per cent.
    • An independent service provider would invest heavily in technology, customer service, and human capital.
    • Splitting roles would lead to the following benefits:
    • 1) Competition from NPS for EPF.
    • 2) Ending VIP opt-out by merging CGHS with ESIS,
    • 3) Raising enforceability by making employee provident fund contribution voluntary.
    • 4) Improving portability by de-linking accounts from employers.
    • 5) Targeting universalisation by simultaneously ending minimum employer head-count and employee salary contribution thresholds while introducing absolute contribution caps.
    • The Health and Finance Ministry would be logical homes for ESIS and EPF policy roles.

    2) Governance

    • The governing board of ESIS and EPFO have 59 and 33 members respectively.
    • Such a large group can’t have meaningful discussions, make decisions, and exercise oversight.
    • This governance deficit needs smaller boards (not more than 15), age limits, term limits, expertise, active sub-committees (HR, Investments, and technology) and real powers.

    3) Leadership

    • Health and pensions need complex skills developed over time.
    • Yet, ESIS and EPF are led by generalist bureaucrats.
    • Both organisations need professional chief executives.
    • Philosopher Isaiah Berlin’s framing of the generalist vs specialist debate as hedgehogs (who know one thing) and foxes (who know many things) is important.
    • A less generalist, non-transitory, and non-cadred chief executive would create a new tone-from-the-top around performance management, technology, and service outcomes.

    Conclusion

    Social security — not a borrowing binge that steals from our grandchildren — can blunt structural and COVID inequality when combined with complementary policies like formalisation, financialisation, urbanisation, and better government schools. But a great place to start is three flick-of-pen, non-fiscal reforms at EPF and ESIS.