The Rani Of Reforms

Repealing antiquated laws, changing labour regulations, devising radical new ways to deliver State services, Rajasthan Chief Minister Vasundhara Raje has emerged as one of India’s boldest and most progressive leaders

The Thar desert in Rajasthan is known for its severe dust storms, which can shift sand dunes and change the landscape of an area. In the state’s capital, Jaipur, Chief Minister Vasundhara Raje, who came to power in December 2013, is whipping up a storm of her own, one which is attempting to change the regulatory landscape and bring in a new culture of governance.

Outdated laws are being scrapped, business-friendly policies are being framed, public private partnerships (PPPs) are being encouraged in areas ranging from roads and power to health centres and schools, and financial inclusion programmes are being rolled out, to name just a few (see “The Reforms Rollout”). Steps like the recent decision to extend job and education quotas to more groups are a step backward, but, overall, the attempt appears to be to reduce the role of the government without a reduction in welfare. The delivery mode is the only change.

Predictably, a storm of protest has also erupted, with activists, trade unions, NGOs and the main opposition party, the Congress, alleging that the government is diverting attention from corruption charges, pandering to big business, relying overly on the private sector and abdicating its core responsibilities. “Privatization is not the panacea for all our ills. The government of the day is relinquishing its responsibilities,” says Sachin Pilot, president of the Rajasthan unit of the Congress.

It is early days yet. Many initiatives have just been taken; many are in the works. It is also premature to certify that these reforms are the game changers that the government claims they will be, or harbingers of the doom that activists insist will ensue.

But there is no denying that even these early endeavours represent something significant.

Sure, there have been reforming chief ministers well before Raje. Chandrababu Naidu in undivided Andhra Pradesh (between 1995 and 2004) and Narendra Modi were aggressive economic reformers. But their reforms leant overly in one direction—economic and business-friendly. The Rajasthan model of reforms, on the other hand, is a comprehensive agenda that spans the entire spectrum.

A COMPREHENSIVE AGENDA

The Rajasthan model rests, says Chief Secretary C. S. Rajan, on three planks—social justice, effective governance and job creation. But effective governance and efficient delivery of public services are the common threads running through all the initiatives.

The most significant step taken in this direction is the repeal of outdated laws. The Rajasthan Laws Repealing Act 2015 scraps 61 principal Acts and 187 amending Acts. Compare this with the three repealing Acts that the central government tabled between August 2014 and July 2015. Of the 400-plus Acts they have junked, only around 30 are principal Acts.

The exercise to identify laws to repeal went through a rigorous process, with Raje keeping close tabs on progress (see “Sweeping Out the Old”). Next up is a review of the remaining 344 principal Acts to identify multiple laws on the same subject and streamline, harmonise and consolidate them. That will be far tougher, says Bibek Debroy, member of Niti Aayog as well as the Chief Minister’s Advisory Council, who has guided the whole process. Consolidation needs to ensure that all provisions in the current laws are maintained in the new law, without any change in content. The legal reform exercise will also throw up areas with no regulation, Debroy points out. This could, then, raise philosophical issues about state regulation.

But the government appears to be engaging with these matters already, with interesting experiments in administering welfare benefits and public-financing-private-provisioning of public services.

The buzz over Raje’s business-friendly initiatives has overshadowed the Bhamashah programme, touted by Rajan as the largest ever financial inclusion and direct benefit transfer programme conceived by a state government. It provides the woman member of every targeted family a bank account into which all cash subsidies a family is entitled to is deposited. Also, there are biometric-based multiple-benefit smart cards for a family unit through which various services can be accessed, and a RuPay debit card. Over time, says Rajan, Bhamashah will be the platform on which a number of government services will ride. It will also pave the way for cash transfers and ensure that the entire amount reaches the intended beneficiary.

While the enrolment target of 90 lakh households has largely been met—the focus now is on ensuring that all members of a family are enlisted, the issue and distribution of the Bhamashah and RuPay cards remain. 

V.S. Vyas, emeritus professor of the Jaipur-based Institute of Development Studies, applauds Bhamashah, especially its woman-centric focus, which is significant in a state with entrenched patriarchal and feudal attitudes.

MORE BANG FOR THE BUCK

While PPPs in physical infrastructure have gained acceptance, the Rajasthan government is breaking new ground by experimenting with them in the social sector. Funds crunch is a big driver—as of 2014-15, the state had a fiscal deficit of 3.5 per cent of gross domestic state product, against the mandated 3 per cent. “I would be dishonest if I say that our state does not face resource constraints,” admits Rajan.

But the government seems to have realised, as Karthik Muralidharan, professor, University of California, San Diego, who has done substantial work on education in India, pithily puts it: “Increasing spending along with a business-as-usual approach is unlikely to bring change.”

Rajan acknowledges that the government has just not been able to get teachers and medical personnel to schools and health centres in remote areas. While this is a problem most states face, the Rajasthan government is trying to use the private sector to get more bang for each buck spent.

There is some wariness about the idea of development experts. “PPP is not a dirty word, the rationale is fine,” says Vyas, but he feels that its adoption must come with caveats. One, the government should accept “ultimate responsibility” for basic services. Two, strong systems must be in place to monitor if the purpose is being served. Three, the model should not be confined to private companies but must encompass a range of partners. Pilot thinks that won’t happen. “In Rajasthan, PPP stands for private-private-partnership. There is no public gain.”

PPPs in primary health centres (PHCs) and community health centres (CHCs) have got underway, with the government putting out requests for proposals (RFPs) for 10 worst performing PHCs/CHCs in each district. Most, says Rajan, are in remote areas. But Chhaya Pachauli of the Jaipur-based Prayas Centre for Health Equity insists that many centres on the list are in towns and are well-functioning. Rajan, however, maintains that they all meet the worst-performance criteria.

The PPPs are open to private companies, voluntary organisations and not-for-profit companies who can take on the responsibility of managing these centres, bringing in doctors, technicians and paramedical staff. They will provide all services that were available there at government rates. The government will continue to provide free medicines. “For the public, there will be no change; these will remain government clinics, the private player will only plug the manpower gap,” assures Rajan.

The private player can provide selected incremental services that the government does not in these clinics. But it will have to get the government’s nod to do so and can charge only government-approved rates. This is setting off alarm bells among activists. With doctors on the payroll of the private party, notes Pachauli, there is a danger that they may recommend these add-on services to patients indiscriminately. But, says Rajan, it’s not as if private players will be allowed to offer these services right away. “We first want to establish ongoing services and stabilise them.” The private party’s request for add-on services will be considered only if it is performing well. But given how doctors push tests and surgical procedures even in urban areas, this could be an area of concern unless there are strong monitoring mechanisms in place.  

Pachauli also red-flags a just-launched universal health insurance scheme. Covering 70 per cent of the population and linked to the Bhamashah card, the sum assured ranges from Rs 30,000 for primary care to Rs 3 lakh for tertiary care. Over time, this will cut down the government’s expenditure on free medicines, which was prone to diversion—free medicines for inpatients will be discontinued and will be linked to the Bhamashah card for out-patients.

A PPP scheme for secondary education is still on the drawing board. An initial draft put up for discussion considered various models of private sector involvement in government-owned secondary schools as well as new schools in PPP mode. Teachers’ unions and NGOs were up in arms with Nikhil Dey of the Mazdoor Kisan Shakti Sanghatan (MKSS) even alleging that this was an attempt to saffronise education. 

At the other end of the ideological spectrum, Damodar Prasad Goyal, president of the Society for Unaided Private Schools of Rajasthan, complains that there is no clarity about the operational autonomy that private managements will have. “They are expecting charity in the name of PPP; this is only for large companies to meet their corporate social responsibility obligations,” he sneers.

The policy paper is being reworked, but the core idea of looking for creative ways to push the spending envelope as far as possible will remain. And PPPs will only be one of many initiatives to address the education challenge. “This is not a programme of very large consequence,” assures Naresh Pal Gangwar, secretary, secondary education. Far from replacing government schools, the PPP model will only supplement them. “It is not either-or. It is and,” he says.

The main focus of the government’s initiatives in education is pedagogy and governance. The state-level amendments in the Right to Education Act—doing away with the no-detention policy and focussing on learning outcomes—address the former. And there is some serious action on the latter, countering criticism that involving the private sector will mean slow killing of government schools.

There were many cases of several government schools within the prescribed radius, resulting in a multitude of sub-scale schools. The state had 236 elementary schools with teachers but no students, and another 38 schools with students but no teachers.

A consolidation exercise undertaken in September 2014 involved merging primary (class 1-5) schools with secondary (class 6-10) and senior secondary schools (11-12) to create 12,269 integrated schools offering class 1 to 10 or 1 to 12. However, the 1 km radius norm for primary schools has been maintained. “No school has been closed down,” says Gangwar.

The quality of monitoring is being improved—primary school teachers are now supervised by principals instead of overworked block education officers. The next step is to develop one of these integrated schools in each panchayat as a model school—Adarsh Vidyalaya. The plan is to cover 5,000 panchayats in three years.

The consolidation exercise is already yielding results, says Gangwar. Government schools have seen a 17 per cent rise in enrolment in this academic session. And upgrading of 5,000 secondary schools to senior secondary schools has seen a 50 per cent increase in enrolment in Class 11.

SWEETENING A BITTER PILL

Also getting a makeover are fair price shops, which are being branded as Annapurna Bhandars in collaboration with Future Retail. The first phase of this programme targets 5,000 shops out of over 25,000 across the state.

Earlier, ration shop owners were not allowed to have a grocery business on the same premises, for fear of diversion of items sold under the PDS.  But now those with shops that have at least 200 sq ft space available on a 30-feet road can convert part of the shop into a grocery store, segregating the part with subsidised rations. Future Retail will supply items they want to stock. However, sale of wheat and sugar (the PDS items) or any brand of salt, three spices and tea other than the Raj brand (a profitable brand of the Rajasthan State Food and Civil Supplies Corporation—RSFCSC—sold through the ration shops) is barred. Nor can Future Retail push its home brands; it has to offer consumers a choice of brands for each item. “Future Group is not running the ration shops nor are we killing the Raj brand,” says Subodh Agarwal, principal secretary, food, civil supplies and consumer affairs, countering criticism by Kavita Srivastava of the Right to Food Campaign.

D. L. Saini, manager of a ration shop in Shivaji Nagar, Jaipur, was the first to sign up for a pilot programme last year. He doesn’t regret the decision. The ration shop was required to be kept open for the specified 15 days of a month, even if stocks got over in less than a week. Now he does not mind spending the whole day at the shop, which remains open through the month. Future Group delivers stocks every 15 days. Earlier, he earned only Rs 3,000 a month as commission from the sale of PDS items; now he earns at least Rs 5,000 extra and has recouped the Rs 80,000 he spent on refurbishing the shop.

The deal is a revenue generator for the state government too—Future Retail gives 1 per cent of the sales proceeds to the RSFCSC. But there’s a far bigger benefit: the arrangement has the potential of breaking down resistance to a difficult reform move—giving rations through biometric-based point-of-sale (POS) machines, which will deal a body blow to diversion of subsidised rations. Shop owners pilfering subsidised rations will lose out on both the commission and black market prices they earned on these. The transition to POS has never been easy; all states attempting it have faced stiff resistance. Rajasthan saw a two-day strike over this. But Raje has made it clear that POS is non-negotiable.

The Annapurna Bhandar concept will sweeten the deal for ration shop owners. “What they will lose in earning from pilferage they will gain from the Annapurna and Raj brand,” Agarwal points out.  The buy-in has been slow but the resistance, Agarwal feels, is more to the introduction of POS than Annapurna.

POWERING CHANGE

The Raje government has put power reforms, which ran out of steam after the unbundling-of -services reforms in the late 1990s, back on the agenda. Tariffs were not revised for five years between 2005 and 2010, and the state utility has a debt burden of around Rs 78,000 crore.

The power reforms are now aimed at improving operational efficiencies. Loans are being restructured, loss reduction is high on the agenda and operation and maintenance (O&M) contracts are being given out to private parties on both generation and transmission sides. Like in Gujarat, there’s going to be separation of agricultural feeders, 100 per cent metering of feeders, energy audits and a huge push to solar power to provide off-grid power to the large number of sparsely populated habitations. “The core of the reforms we are now undertaking is providing reliable power to the consumer,” says Sanjay Malhotra, principal secretary, energy.

A big piece in this package is the distribution reforms. By the time this magazine goes to print, the tendering process for distribution franchisees in Ajmer, Bharatpur and Kota would have started. “This is a long-awaited game changer,” says Kameswara Rao, leader, energy utilities and mining, PwC India.

Of the wide range of franchisee formats, Rajasthan has gone in for the Bhiwandi (Maharashtra) model, where the state utility retains ownership of assets but will hand over maintenance to the franchisee for a fee. Subject to licensing conditions and conforming to grid code and safety standards—and tariff setting by the regulator (allaying fears of tariff hikes by the private party)—the franchisee will have complete freedom of operation, including getting meters installed and tackling power theft.

It’s a win-win for everyone, says Rao. The state utility is guaranteed higher revenues, the government saves on subsidies towards losses, and the consumers are the biggest beneficiaries, with improved quality of power supply and customer service. More importantly, he says, this model brings in economic gains as leakages are plugged, and proper tariffs are applied. In many towns like Bhiwandi and Nagpur, losses came down from 50-60 per cent to around 15 per cent over a period of five years.

WOOING BUSINESS

Outside Rajasthan, the Raje government’s business-friendly reforms—labour law amendments, land acquisition law and ease-of-doing-business initiatives—are grabbing attention. For her, these are as important as all the other reforms. With 64 per cent of the population in the 14-19 age group—the highest in India—and seven million joining the working group every year, generating employment by getting big ticket investments is a must. That is the biggest challenge for Raje, and she knows it.

Labour law reform was among the first initiatives Raje took up to push labour-intensive manufacturing. Organized labour is only 2.5 per cent of the workforce in manufacturing in Rajasthan against 16 per cent in Maharashtra and the national average of 10 per cent.

But small and medium businesses feel left out. “The focus is on foreign investors and big businesses from other states,” complains O.P. Agarwal, president, Bhiwadi Manufacturers’ Association (Bhiwadi is an important industrial cluster on the border with Haryana). Though industrial relations in Rajasthan are largely peaceful, he says, small and medium businesses have regulatory and infrastructure issues that are not being addressed. But, says Rajat Mishra, labour secretary, “Our amendments are for smaller firms, not for the large ones.”

Indeed, the reforms have not meant that large companies can escape labour regulations. The only reform that helps them directly is the increase in the requirement of support from workers for a union to get registered; this will curb the problem of multiplicity of trade unions in a unit. And an increase in the size thresholds of companies coming under the ambit of labour laws will help small companies scale up operations without the fear of having to deal with compliance burdens.

Mishra acknowledges that the amendments have piqued interest in Rajasthan as an investment destination for large firms, but that is only because this will encourage smaller firms to develop as ancillary units. “We are focussing on the micro, small and medium enterprises (MSME) as an engine for generating employment,” says Mishra. Whether that happens will be known only a few years down the line when the Annual Survey of Industries data will give numbers on new units in this segment.

Raje has balanced her aggressive push for labour law reforms with an equal focus on skill development. The convoluted name of Mishra’s department—skills, employment, entrepreneurship, labour, factories, boilers, ESI—indicates the determination to ensure that labour reforms and skill development are linked.

The focus on skills is not new. During Raje’s first tenure as Chief Minister (2003-2008), Rajasthan had been the first state to set up a skill mission, the Rajasthan Mission on Livelihoods. This time round, Raje got 22 departments and 70 schemes dealing with skill development converged into the Rajasthan Skill & Livelihoods Development Corporation (RSLDC) and brought changes in the Apprenticeship Act to make the scheme simpler and decentralise decision making from the central to the state level.

Training courses have been revamped so that they cater to the skills the job market wants. Large companies have been roped in to provide top-up training in specific skills to overcome rigidities in the curriculum of Industrial Training Institutes (ITIs). There are numbers to show for all this. In the last 18 months, 80,000 youth have been trained, 65 per cent of whom have found jobs, says Gaurav Goyal, managing director of RSLDC.

In addition, industry is being encouraged to take up re-skilling programmes so that those likely to get retrenched due to easier labour laws, are not left stranded in the job market.

ROOTING THE REFORMS

The broad-based nature of reforms distinguishes what Raje is doing now from her earlier stint. She was reform-minded in her first tenure too, notes Vyas, but was more practical. She focussed on the power sector and water management and launched the Bhamashah programme in the last year of her tenure. The first steps for labour law reform were taken then but not followed through. He is a bit concerned that the present business-friendly reforms may be a little unwise, given the fragile economic situation.

But the aggressive wooing of investment that Raje did in her earlier tenure gave her a pro-big business image, and she seems keen to temper that perception this time.

So the Chief Minister’s Advisory Council has a less provocative title than the Economic Policy and Reforms Council of her first tenure, though the composition of both is similar—economists, technocrats and big names of India Inc. And she is taking care to balance out reforms with safety nets like Bhamashah and health insurance, skill development and improving the quality of government schools.

One way of arresting the erosion and shifting of sand dunes due to storms is to stabilise them through the planting of trees and shrubs. If Raje wants to ensure that her reforms thrust sustains, she will have to see that they get embedded through governance and institutional changes. Else they may just get blown away by some other storm. Which will be a tragedy.

Also read:

Interview: Vasundhara Raje, Chief Minister of Rajasthan. She speaks on her views on reforms, society and governance.