Liberal policy wonks operate with so many moral buzz words these days that it is difficult to recognize the beginning, the origins. One is good governance. The second is institutions. The third is rule of law. If you are going to ask for governance, you might as well ask for good governance. It helps to start with no-brainers, and it even makes one look erudite. But how do you get good governance? Why, you need to set up the “rule of law”. But how can you implement the rule of law? By setting up institutions which deliver justice. And what are these institutions? Democracy, a police force, courts etc. – and good laws. You have seen this movie before ?

Let us fast forward to 2002. Among developing countries, India is the most outstanding example of institutions, laws, bureaucrats, politicians, justices i.e. the ideal playground for the rule of law. Ask anybody (even the corrupt), whether the Indian society delivers good governance in any sphere other than the market-place ? (where interestingly, synthetic institutions are not the arbiter of justice but the atomistic, impersonal, Hayekian forces). The unanimous answer - no, not for thirty years, anyway. If dating is required, it would have to pinpoint the ascendancy of the Kali (goddess of destruction) of good governance in the late sixties - Mrs. Indira Gandhi, the founder of the leading opposition party in India.

In my previous article "India must learn - from Rwanda", Business Standard, June 1, 2002, I had contended how, to a Martian observer, a very poor and not noted for governance country, Rwanda, was objectively showing more signs of "good governance" than India. Rwanda was punishing some of the guilty individuals involved in the pogrom of 1994, and letting go of some of the wrongly imprisoned innocents. The advanced good governance darling, India, has however no time for the niceties of the early stages of development. India, has a billion people, so there - ignore us at your peril. We can start a war with Pakistan at any time. We have foreign investors just dying to enter our markets. Don't you see - we get 2 billion dollars a year of foreign investment, that is Rs. 100 a year for every individual. If you can get soo much foreign money and foreign interest, who needs governance?

Good governance is the difference between whether the recent pogrom in Gujarat is a blot on the Indian landscape, or the entire canvas. Prior to the pogrom, was the burning of a train at Godhra. This was the excuse the "mob" used to unleash terror. But what happened at Godhra? A train carrying Hindu pilgrims was burnt by a Muslim mob. But the free press, the one remaining worthwhile institution in India, suggested that this might not be the whole truth - and my good friend Saeed Naqvi, even hinted at the heretic possibility that the train compartment fire was, probabilistically, started from inside the train carrying exclusively Hindu pilgrims. At that time, Naqvi was vilified. But he has had the last cry. A government of India investigation undertaken by the Ahmedabad based Forensic Science Laboratory has just concluded that the fire could not have been started from the outside; further, it was most likely started from the inside i.e. "standing in the passage of the compartment near seat 72, using a container with a wide opening, about 60 litres of inflammable liquid has been poured and then immediately a fire has been started in the bogie". While brave, the report will be probably rejected by the "don't confuse me with facts" government. So what happened to our surfeit of institutions? We have the courts, the police, the IAS officers, a 5000 years civilization laboratory, and yet we cannot punish anyone guilty? Contrast that with Rwanda and Korea; in the latter, the first two sons of the President have been jailed on financial corruption charges.

Fast forward to that "other" governance concern of India - how to help its poor. My good friend, and a respected economist, Mr. Kaushik Basu is the guy with the camera this time. In an ideology laden piece "What is happening to inequality" (Business-Standard, July 10), Kaushik laments the plight of the poor and then advocates that what is needed is..... good governance. And how should the poor be helped - through the time-tested (sic) institutional set up: "the state has an important role to play in designing and executing anti-poverty programmes" (emphasis added). While the state has an important role in financing the alleviation of poverty, the case for it properly designing or executing has yet to be proven.

At the time of the box cameras, early sixties, the democratic institutions in India, not unlike Mr. Basu, were concerned about the poor. And about their most dire need, food. So "government intervention" was invoked to help the poor. This is what was done in order that the poor be helped. First, the Food Corporation of India (FCI) was set up so that food could be distributed to the poor; naturally, the right to "sell" food to the poor was made a central government monopoly. But food needed to be produced in increasing amounts - so one needed modern inputs. Rather than import cheap fertilizer, good "state intervention" dictated that fertilizer subsidies should be provided to the manufacturers of fertilizers, and not the farmer. The argument - food will be cheap via fertilizer subsidies and therefore help the poor.

It was not necessary to just produce the food. The government needed the food to (over) stock the FCI. To achieve this goal, the central government set up a procedure for procuring food. But procurement meant that "remunerative" prices were to be paid to the farmers, especially "poor" farmers. So an agricultural prices commission was set up to set floor prices for the prices of foodgrains. But these prices more often than not were above free market prices. Since all the farmers naturally wanted to supply the food, the government prevented them from doing so by prohibiting the inter-state movement of foodgrains. Now to whom should the government give the massive profits involved in helping the poor? A political decision was the most convenient, so "friends of the government" (frogs) were provided with the license to overstuff the government coffers. The prices were so remunerative that the government procured more food than could be distributed; India now has 60 million tons in storage, or more than 450 days of food for every one of the official 260 million poor in India.

What should be done to alleviate poverty? Why not plain simple cash transfers to the poor? The poor are poor because they do not have money. So why not give them money to alleviate present poverty, and help finance their education and health thru voucher programs. No government intervention; just government finance. How much will poverty alleviation cost? The poverty gap is approximately Rs. 900 per person per year, there are approximately 260 million poor, so total expenditure involved is Rs. 20 to 25 thousand crores, or less than 1 percent of GDP - far less than the 15 percent devoted each year to "help the poor". How much does India ostensibly spend through well designed and executed poverty programs per year - do not ask, that is another terrible movie.