Budget 2010:Effective Social Sector Spending Needed

Here's the text of my article published in WSJ on the Need for Effective Social Sector Spending in India. The link to the article is given below:

Article
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By SHASHWAT RAJ BADONI and PRIYA NADKARNI

This article focuses on the proposals for the social sector expected from Budget 2010.

With the burgeoning fiscal deficit of 6.8 % of GDP on one hand and the growing inflationary monster on the other, the finance minister will have his hands full this budget day. The third part of this three-part conundrum that Pranab Mukherjee can hardly afford to ignore is reaching GDP growth of 10 %.

We attempt to make a case for an efficient and convergent implementation of major government programs instead of the allocation of additional resources for each program. We also analyze the major themes that we observed in the government's social sector programs and whether this year's budget will continue from where the last one left off.

An Indian village woman gathers dried cow dung cakes in the Teliarganj area on the outskirts of Allahabad on December 21, 2009.

The National Rural Employment Guarantee Act, now renamed Mahatma Gandhi National Rural Employment Guarantee Scheme, guarantees 100 days of employment at the state's minimum wage. It has provided employment opportunities for more than 44.7 million households during 2008-09. The aam admi cheered as the government increased its allocation to NREGA by 144% to 39,100 crore rupees last year but questions about its efficient implementation remain unanswered. While we welcome the government's spending on socially beneficial programs, we are concerned whether these programs actually benefit the targeted segment.

We believe that funds should be set aside in the budget for support functions that improve the implementation of such programs. MGNREGS, for instance, has been marred by patchy implementation with different efficacy levels in states. In states like Jharkhand, money is being siphoned off in the names of non-existent workers. Additionally, a new breed of brokers has sprung up that charges money to arrange jobs. On the other hand, states like Rajasthan and Andhra Pradesh have higher success rates due to transparency and the use of support functions like IT.

The government has begun to make changes to its existing policies to facilitate institutional improvements within these programs but certain fundamental problems still remain.

The outcomes budget for 2008-09 states that about 51% of the total outlay for Sarva Shiksha Abhiyan (an educational program started in 2001) was committed to improving the quality of learning and ensuring access to upper primary classes.

Despite this, the centre-state tussle over the devolution of funds continues to delay programs. The Right to Education Act passed last year will only be implemented from April this year because the states and the central government could not reach a consensus about their share of monetary participation in the Act's implementation.

Similarly, even though the Finance Minister increased the allocation for National Rural Health Mission (started in 2005) to 12,050 crore rupees last year, the problem lies in the shared responsibility between states and the central government. The central government contributes 85% of the total fund requirements while the states contribute about 15% in the case of the NRHM.

However, the central government has not been successful in holding the states accountable. The Comptroller and Auditor General's report on NRHM highlights the fact that the actual release of funds has been higher for non-focus states because of high unspent amounts in the focus states.

This reveals the ineffectiveness of budgetary allocations in the presence of indecision over centre-state participation in program implementation. The report of the 13th Finance Commission under Vijay Kelkar will provide the roadmap that will define the centre-state equation as the Finance Minister has already stated that the Commission's proposals would find a place in the budget.

The government is increasingly inviting private players to work alongside the state machinery. The interest among private enterprises and NGOs to partner with the government is high as evidenced by the National Rural Livelihood Mission that currently has 15 private partners providing vocational training to the rural youth. The government bears the cost of the training on the condition that the private parties will provide jobs to the trained workers.

We expect that the government will identify more such areas where private sector participation can be leveraged in development. The government can suitably incentivize private participants to set up healthcare infrastructure through the extension of existing tax holidays and, at the same time, institute an assessment mechanism in the public sector to improve quality, access and delivery of care.

The government is trying to streamline most major welfare programs that it has running currently. It is planning to implement the Right to Education Act passed in 2009 through the Sarva Shiksha Abhiyan. The Human Resources Development Ministry has projected 1.71 lakh crore rupees as the total cost of RTE, for both the centre and the states, for five years. More than 20,000 crore rupees has been given to the states for SSA, according to a news report. Allocating funds for the joint implementation of these welfare programs would plug the wastage of taxpayers' money.

In a circular issued before last year's budget, the government sought to implement the Integrated Watershed Management Program along with the NREGA as more than 50% of NREGA works relate to soil and water conservation. This will increase the productivity of assets and prevent duplication of effort in each of these programs. The state is already talking about the convergence of programs as a way of bringing in more effective governance but this would also require a tremendous co-ordination effort across ministries.

ABOUT THE AUTHORS:

Priya Nadkarni is currently pursuing a post graduate program in management at ISB. She was previously a business journalist with a financial daily in India, based out of Mumbai. She covered capital markets and the Securities and Exchange Board of India. She has a keen interest in public policy and regulation in the financial markets.

Shashwat Badoni is currently pursuing a post graduate program in management at ISB. Prior to ISB, he was working as an equity research analyst focusing on technology and commercial services companies. He is keen to develop cross-functional expertise in the consumer goods industry.

Placements: Day One Chaos

One Day before the D Day (Jan 15, 2010)
10:00 AM: Woke up, took out my notes started reading
1:00 PM: Oops, have a class to attend. Already missed two, cannot miss this one. Off to Khemka. Laptop on, notes revision continues
8:00 PM: Still don't know "Why HUL", "Why Citi", satisfied with "Why BCG" and "Why ATK"
9:00 PM: Why is my story so boring???
3:00 AM: Print out taken, folder arranged. Need to sleep, have to wake up at 6:00 AM
3:02 AM: Crap, need to call sis.
3:03 AM: Call made, lights switched off

The D Day
7:00 AM (HUL Area): Group Discussion about to begin. Haven't had anything. Feeling weak. Buck up the battle has just begun.
8:00 AM (HUL Group Discussion):Case given, has 3 cryptic tables. 10 mins to analyze.
8:10 AM : Go! I speak, she speaks, words disappear, sound appears
8:20 AM: Time up!!
8:25 AM: Moved to the next round.A friend volunteers to help me coordinate between interviews. God Bless her!
9:00 AM: Reported to the Citi Area. Citi delayed. HUL calls wants to interview. ATK wants to interview too. Run from one volunteer to the other, get HUL and ATK shifted. Finally things set. All set for Citi
9:30 AM: Citi delayed further.
10:00 AM: Citi Round 1- Cracked. Asked to interview again immediately.
10:30 AM: Citi Round 2- Technical, very technical. Satisfied. Citi Process over.Very very late for ATK
11:00 AM-12:15 PM: Begged ATK to interview. Round 1 cleared. Asked to interview again. Round 2 cleared. Asked to interview again. Requested them to appear for interview with HUL. Totally tired. Rushed to HUL area. Found out HUL panel has been waiting for two hours.
12:30 PM: HUL interview-
Interviewer: Tell me about one advertisement you love
Me(totally lost): Ummm,ummmm,mmmm, sir I haven't watched TV for the past one year.
Interviewer: Huh! Well ok!
Me(aside): @#%#(#&
1:00 PM: Reached ATK.Round 3- Asked to interview immediately.
2:00 PM: Totally dead. Already late for the BCG interview by an hour
2:05 PM: Reached the BCG lounge.Most of the people already interviewed. Interviewed at 2:30 PM. Took a minute to stretch. Drank two red bulls. Go!!
2:45 PM: Despite every help from the interviewer mind froze. Finally able to solve the case.
3:30 PM: BCG Round 2- Totally zoned. Can't hear a word. Head feels heavy. Somehow scrapped through the case.
4:00 PM: Long excruciating wait begins. Waited outside ATK area. Tired of waiting. Move to Citi and BCG area. HUL calls: Result dinged. Not surprising after what I did in the interview. Reached Citi area. Volunteer informs that Citi has already picked its guy. Next BCG: Result dinged.
5:00 PM: ATK dinged

Lessons
1) Focus, focus, focus
Positives
1) A certain friend
2) The day finally got over
Negatives
1) None. Well may be 'No Job'

Core Term: My Learnings

Term I
a) Financial Accounting in Decision Making: Accounting Shenanigans
b) Statistical Methods for Management Decisions: 95% Confidence Interval doesn't always translate to 95% confidence
c) Managerial Economics:Me in your shoes, you in mine!
d) Marketing Management:Restaurant menu can be engineered

Term II
a) Global Economics: The group in minority is the most vocal
b) Decision Models and Optimisation:One can by-pass probability through expectation
c) Competitive Strategy: Strategy works best ex-post
d)Marketing Decision Making: Mark-Strat (sigh!)

Term III
a) Corporate Finance: Arbitrage is a myth
b)Operations Management: An hour saved at a non-bottleneck is a mirage
c) Managerial Accounting and Decision Making: Cost, cost and cost
d)Entrepreneurship: You can chose any profession but nothing beats the thrill of entrepreneurship

Term IV
a)Investment Analysis: It is very difficult to make money in the market
b)Strategic Analysis of Information Technology:Sleeping with eyes wide open
c)Government, Society and Business: Per capita income is not the best measure of human development
d)Management of Organisations: You can fool some of the people all of the time and all the people some of the time

The Dharma of Business

I was 9 at that time, very keen to start my own library. And so I did. I with two of my closest friend on the 1st Monday of May set up our very own library. Everyone was invited, all they needed to pay was an entrance fee of Rs 5/= if they didn’t rent a book, and Rs 2/= if they rented any book. As we started making money we got more and more creative. More money followed. The neighborhood guy Abhay, kept a close watch. Within a week, we were staring at his library, far fancy, and much superior. And then one day we lost everything. Just like that, our dreams shattered. The reason: Water from somewhere destroyed all our books. Five days later we came to know through some internal sources that, it was Abhay’s idea. We were heartbroken and seething with anger, we wanted justice but we had no proof. It was then that my teacher gave me the biggest lesson of my life: At the end of the day you have to do your duty, and if someone comes in between you and your duty, you deal with it through Chanakya’s four principles of Saam (Equality), Daam (Enticement), Dand (Punishment/ war), Bhed (sowing dissension). The dharma of our business was at that time to preserve its existence, in whatever way it could.
I look at a business as an end in itself. We all are cogs in that intricate machinery. Our purpose is to keep it running, because it in a big way defines who we are as owners. It gives us everything, food, clothes and a roof. If anything poses any risk to it, we should defend it. It’s a scary world we’re living in. A world where one can trust no one but oneself, the biggest dharma of our business is to keep itself running and protect itself from the world. In an ideal world everyone would play by the rule and there would be no need to play hard. But this is the real world where and I quote “you either die a hero or live long enough to see yourself become a villain”. The world at some point was fair and then somewhere something went wrong, terribly wrong. And then this ugliness spread until the root of corruption entangled everyone and everything. We are at a point of no return, the only way to fight is to fight hard and fight rough. So I believe it’s ok to undercut if the survival of the business is at stake. In the context of a business it’s nothing more than a creative intervention. There is always someone waiting for you to give them the first chance to destroy you. To fight them you have to think like them. That’s the only way, and that the only right ‘wrong’ way!

A marathon called life!

It was during my last few days at IIT, I was sitting atop OAT wall with two of my closest friends, Piyush and Bhan. We were fretting about how are lives were doomed to the point of no return and how there seemed no tomorrow. We had screwed CAT, the job prospects seemed bleak and our personal lives weren't going anywhere. It was then in a moment of truth Bhan mentioned "Yaar the life is a marathon where we'll live for at least 80 years. So what we've started slow. The track is too long and we can cover up". The argument seemed good but it didn't change my mood. I was still reeling in shock. My great dream was shattered and it didn't feel too good. Three years I struggled with my condition and finally now I understand what he meant. Life and its wondrous uncertainty is humbling and we can never know what it has in store for us. Luck is dynamic and it explains more variance in success that we in our moment of hubris attribute it to. I now appreciate every word of the the statement and am much more satisfied. Still a long way to go!

Five months at ISB: My takeaways

1) Prioritize, prioritize, prioritize
2) Academics is not the be all and end all of an MBA but can be fun nevertheless
3) It is very important to enjoy what you're doing without any regrets. Any regret that you may have is irrelevant. So if you attended the Co2008 Lounge Party over a CorpFin assignment, it was probably worth it. After all you can't put value to an hour of unadulterated fun.
4)Don't take tangible outputs such as Grades, Projects etc too seriously. Try and have fun, the result may surprise you
5)Try and enjoy the process, have tremendous expectation from the process, not from the result. If you have done something to the best of your abilities, pat yourself, it's then that the result doesn't matter.
6)There is a lot of luck that separates an A(-) from an A.It's important you don't give over importance or feel dejected just because you didn't max it.
7)Know why you came here. This should help you to be focussed
8)Look at your study-group mates as friends. Be responsible to your group. Invest in the relationship. I've had the good fortune of having a ball with my study group. Don't let your assignment grades be any indicator of the camaraderie you share.
9)As our GSB Prof would say per capita income is not really the best indicator of human development, so make sure you choose a job that best fits with your vision of your life. McKinsey is good but is it really for you?
10) Finally appreciate your time here, it is running faster than you think. And we know we'll miss it!

Bandhan-2009

As I walked back to my room from the AC2 Lawns, I closed my eyes. “Let me imagine a world without vision”, I spoke out loud. Ten steps into the 200 meter walk I fell. The shrubs gently pierced my skin, and a small drop of blood oozed out. But I was determined, I didn’t let go. It was an important lesson I wanted myself to learn. And so I got up. Pictures started to flash in front of me: Potatoes, brush and onions. I choked-I could clearly see the children and their eyes. And suddenly I was in my Corporate Finance class, studying Miller and Modigliani Irrelevance Proposition. For the first time I could relate to the theory. In a perfect world, the distribution of wealth would not matter. We would all be happy in our own world. We would be clapping our hands, whenever we felt happy, we would share our joys. We would shed tears. But this is not a perfect world the MM Irrelevance did not apply here.
Suddenly I hit the wall, I opened my eyes for the first time in 10 minutes, I was nowhere close to where I expected. My head felt several notches heavier. I felt the need to go back. I had to see the children again. I wanted to tell them, how they make me realize what a petty man I’ve been. They make me want to scream; to every friend of mine who I’ve seen getting depressed on not getting an A, or not getting an ELP. But I couldn’t muster the courage; I couldn’t look eye to eye. How I admired each and every volunteer, who could ‘share a smile’; for I couldn’t. May be all I can do is Accounting, and feel happy every time I do it well.
I closed my eyes again. I knew where my steps will take me. I tripped on something. It was a potato. A few kids clapped. I felt lighter. I opened my eyes; I was in the lawns again. I was ready to play. I was ready to 'share a smile'!