Monday, May 9, 2016

Ending Suboptimal Performance

Legacy approaches need to be reconsidered...

With growth being upbeat compared with much of the world, things must be going well with us. There are indeed a number of positive attributes that lend an upward trajectory to expectations. But, there's the difficulty of "living in interesting times", as in the apocryphal "Chinese curse", while we go through this period of transition, with uncomfortable but desirable transformations.

Setting aside the hype in claims and counter claims, there is a genuine upwelling of positive developments, resulting from economic activity in sheer numbers and scale. This leads to improvements in capacity and productivity, although more slowly than we want. The roads in many parts of the country, for example, are disrupted even as they're being improved. Also, roads everywhere are dug up to lay fibre-optic cables where possible. This makes the transition distressing, but the benefits after completion are likely to be substantial, as can be experienced, for example, in driving from New Delhi to Mumbai and beyond. Once Electronic Toll Collection begins countrywide, there will be even greater benefits through more efficient and less polluting freight carriage by road. But these gains come at a cost and take time, and those hurt.

Electricity supply, however, has been negatively affected by a number of factors apart from legacy issues, such as disruptions in fuel, high variations in costs, environmental concerns, and slower economic growth. The adoption of stricter environmental norms, while desirable, has added to costs in this difficult period. Legacy issues driven by political considerations have yet to be addressed, such as under-recoveries from agricultural and residential users, overpricing to industry, and delayed government payments. On the positive side, solar power is becoming more attractive compared with more fully-loaded costs for other sources. A move towards increased use of solar power is likely to be very beneficial in the longer term.

Market access and delivery, meanwhile, is being facilitated by digital platforms, so that many activities from commerce to government services are making the transition. For instance, even for reporting forest fires and fighting them, as in the hills of Uttarakhand just now. There are impediments, of course, such as limited rural access, especially to electricity and high-speed digital networks, or access to credit. But there is increasing capacity coming on-stream, alongside the negative reality of stalled projects and NPAs (non-performing assets, ie, bank loans in arrears). Barring unexpected disruptions, this economic momentum will continue to flow and build, despite a lack of effective strategies, or of planning and coordination. This in itself will improve the NPAs in banks, provided they can weather the interim period. Wilful defaulters need separate resolution.

There are also significant threats to the momentum. Apart from disruptions from social or political discord, the NPAs are a significant hazard, as also an obstacle to other activities whose access to funding is constrained. Other major threats include judicial or environmental actions that disrupt economic activity for whatever reason. Take the automotive industry, which employs millions directly, and perhaps over 19 million indirectly. While Delhi has no major manufacturing plants, actions taken by the Delhi government, or by the courts banning registration of large diesel cars, dampen prospects for all of them, and extend through ripple effects to the sectors that serve them, such as consumer durables, food and travel. It would help if the judges and environmentalists were informed by experts with understanding of the linkages, and of the financial impact, so as to calibrate phased action.

Despite these hazards, the momentum and flow is likely to result in improved productivity and living standards. But this will happen only to the extent that the developments are real. Unrealistic claims will not help, and this is something that needs to be internalised and made manifest in our data and reportage. The quality of data is crucial for analysis and action, as well as for influencing our perception and behaviour. In areas of essential infrastructure such as energy, communications and transport, good data quality will help drive sound decisions and action for future development.

The Opportunity Costs of Underperformance

What one rues is the difference between what happens with this uncoordinated approach, and the possibilities with better planning, prioritising, and coherent effort. There are several aspects to these losses. For example, there's the difference between actual versus potential access to electricity, broadband, or roads/transportation/logistics. Second, there's the loss of functioning at lower skill or delivery levels, instead of gearing to higher levels of professionalism for all skills, and at all levels. Third, and perhaps most damaging, there's the underutilisation of human resources, because of employment and productivity constraints.

Manipulative claims only help perpetuate problems. An example of this is the level of electricity access in the country. A survey of several hundred rural households in 2015 regarding access to electricity uncovered large discrepancies between claims of high access and quality compared with actual levels.1 Aside from households with no access to the grid, some with access suffered poor quality with high variations in supply, many days without electricity, or with only a few hours of supply each day. Worse, the gaps between tariffs for agricultural versus domestic versus commercial/industrial supply have continued. Power companies not paid on time for subsidies owed are in turn unable to invest to the extent required in equipment because of delayed government payments. This perpetuates a vicious circle of under-recoveries, and underinvestment in generation and distribution systems, leading to insufficient power of poor quality, and so on.

Similar problems affect other areas such as food supply and communications. In food supply, issues such as poor warehousing lead to spoilage. In communications, the need is for policies that will help use resources in the delivery of services. Legacy approaches need to be reconsidered with the purpose of actually providing for our needs. A can-do, problem-solving approach is likely to help take us forward. Meanwhile, improving our performance within present constraints will help in coping during the transition.

Shyam (no-space) Ponappa at gmail dot com

1: "Access to Clean Cooking Energy and Electricity," 
Abhishek Jain, Sudatta Ray, Karthik Ganesan, Michael Aklin, Chao-Yo Cheng, and Johannes Urpelainen
CEEW Report, September 2015