Shortly after the 2009 general elections, I attended a lecture in Bangalore outlining a policy road map for the new government. The speaker was Rakesh Mohan, an economist who had held senior positions in the ministries of industry and finance, and was at the time a deputy governor of the Reserve Bank of India. In his lecture, Mohan argued that the first wave of reforms had freed businesses from State control and led to impressive rates of growth. What we needed now was to focus on the quality and capability of public institutions.
Mohan's lecture struck a chord, for I come from a family of public servants. Although I chose a career outside government myself, I have, both as a citizen and as a scholar, had close interactions with public officials of many different states and departments. I have thus been witness to (and occasionally been a victim of) the rapidly deteriorating quality of public services and public servants in India.
In 2009, when the United Progressive Alliance government was re-elected, and Manmohan Singh seemed to be in effective control, there was much talk of the need for a "second generation of reforms". It was argued that for India to grow more rapidly, it had to welcome foreign investment in sectors previously closed to it (such as multi-brand retail and defence production), liberalize labour laws (to make it easier for companies to hire and fire workers), and create a unified national market (through a goods and services tax).
As we know, those early hopes were belied. The UPA government did not actively pursue these policy reforms. However, after the National Democratic Alliance government came to power last year, the hopes were renewed. With a powerful prime minister in Narendra Modi, who had cut down red tape in Gujarat and promised to do likewise at the Centre, the business community hoped - and perhaps still hopes - that the tasks left unfinished by the UPA government would be quickly taken in hand.
In 2015, as in 2009, "second generation reforms" are taken to mean a greater ease of doing business. Now, as then, very little attention is being paid to the reform of the public sector on which so much of India's economic and social well-being still depends. This led me back to Mohan's prescient and still relevant talk in Bangalore. Fortunately, I was able to find a printed version, whose main arguments are outlined below.
Rakesh Mohan begins by acknowledging the impressive achievements of the first generation of reforms. Over a twenty year period, six separate governments have worked to free State controls on private investment and entrepreneurial action. This has allowed the Indian economy to move on to a higher growth path, which, in turn, has reduced poverty, and made our chronic foreign exchange crises a thing of the past.
Mohan then argues that to keep the growth rate going, and to deepen its reach, we need a significant improvement in the functioning of the State sector, especially in the availability and reliability of public services that the private sector cannot or will not provide. Thus, he writes that "just as the first generation of reforms empowered the private sector to perform to the limit of its abilities, the second generation of economic reforms must focus on a similar empowerment of the public sector to deliver public goods and services for the benefit of all segments of the private sector, corporate entities, and the public."
Mohan then highlights four sectors where public services are currently below par, and where their improvement can lead to significant benefits for the economy and society as a whole. The first area is agriculture. While recognizing the need for poverty alleviation schemes such as MGNREGA, Rakesh Mohan argues that the rural sector needs a second Green Revolution, focusing on the rise in productivity and incomes in dairying, horticulture, poultry and fisheries. Here, scientific research must be combined with easier access to markets and credit.
The second area is urban development. India will soon have the largest urban population in the world. Yet, in towns small and large, as well as in the mega-cities of Delhi, Calcutta and Bombay, the bulk of urban residents do not have access to safe housing, sanitation, or drinking water. Public transport services (perhaps with the exception of Delhi) are appalling. In sum, to quote Rakesh Mohan, there has been "a massive failure to provide for public management of cities in India in all its various manifestations". Mohan holds that to make our towns and cities more habitable (in all senses),we must have strong and empowered municipalities, which can raise their own finances, and be directly responsible to voters rather than (as present) subservient to the politicians and bureaucrats in the secretariats of state governments.
The third sector is human resource development. The state of primary and secondary education in India is abysmal, as authoritatively documented in the Aser reports. Our universities, meanwhile, are underfunded and over-politicized. No one can disagree with Mohan when he says that "there is no way that we can sustain growth of the kind that we envisage, 8 per cent plus annual growth, unless the whole education system - primary, secondary, vocational, and higher - is revamped".
The fourth area is public sector management. The provision of education, transport, electricity, and law and order (among other subjects) are the primary responsibility of the State, yet the personnel in electricity boards, bus corporations, airport authorities, railway boards, and the police and judiciary are largely untrained, incompetent, and unaccountable. They are unable to cope with the technical and logistical demands of the complex tasks they have to undertake. As Mohan remarks, with a touch of sadness, so many of the best and the brightest Indians opt for the private sector (or, one might add, go abroad). Yet, "we need to make public service prestigious again: not for the exercise of power and authority, but for tackling challenges for efficient public service delivery". Meanwhile, at the higher levels of administration, we must encourage the lateral entry of domain experts, rather than (as at present) make all top government jobs the preserve of a generalist civil service.
Like Mohan, I too have long argued for the induction of professionals at the middle and higher rungs of government. Indeed, among the few good appointments made by the UPA regime were those of Nandan Nilekani as UIDAI chairman and of Raghuram Rajan as governor of the RBI (both fiercely resisted by the bureaucracy and even by some cabinet ministers). Unfortunately, those examples have not been replicated. My own view is that from the levels of joint secretary upwards, all jobs should be filled through open competition. IAS officers should be encouraged to apply, but chosen only if it is clear that they are at least as well suited as the other candidates.
Mohan focused on four sectors, and briefly mentions a fifth. This is health, whose importance he flags but does not elaborate, since he says he doesn't have the relevant expertise in the field. I would add a sixth sector, that of environmental sustainability. India is an environmental basket case - witness our staggeringly high rates of air and water pollution, the rapid depletion of groundwater aquifers, and the chemical contamination of the soil. These varied forms of environmental abuse lead to shortages and conflicts, and to adverse impacts on human health and employment. If not checked or controlled they could greatly undermine the prosperity, security, and stability of India. It is well known (as well as widely demonstrated) that the market alone cannot solve environmental problems. Here, too, a strong and effective public sector is indispensable, in the form of independent regulatory bodies staffed by qualified experts, who can set standards and be able to punish those who do not meet them.
Towards the end of his essay, Mohan writes, "it is not easy to develop a clear path for such public administration reforms, but it is clearly high time that more constructive thought is given to the subject". Sadly, there was little thought (constructive or otherwise) devoted to the subject by the UPA government, and from what we know so far, no thought devoted at all to the subject by the present NDA government. The only reforms that are talked about are those that will further aid the ease of doing business. No doubt those are important, but arguably the reforms of the public sector that this column deals with are more important still.
The lecture that I heard in Bangalore has been printed as the concluding chapter of Rakesh Mohan, Growth With Financial Stability(Oxford University Press, 2011). The chapter carries the title, "Economic Reforms in India: Where are We and Where Do We Go?" I would urge that it be read by senior officials in the ministry of finance and the prime minister's office, by the members of the Niti Aayog, and by senior cabinet ministers too. If any of these learned men and women have already read Mohan's essay, perhaps they should read it again, as the approach of the government as presently articulated does not incorporate its ideas in any form
STATESMAN, JUL 11, 2015
Arindam Ghosh-Dastidar West Bengal’s ebullient Chief Minister has reduced the budget to irrelevance. Less than four moths after that fiscal document for 2015-16 was unveiled and with less than a year to go for the Assembly elections, Mamata Banerjee has engaged in pop economics at its worst with a spirited expression of facile concern over the state’s torpid economy. Having failed to steer the economy from the rocks of the financial straits, she has been calculatedly impervious to the truism that non-Plan expenditure can only enhance the state’s fiscal liabilities.
The massive expansion in government employment is verily a journey without maps. It is testament too to the singular option that is available in the job sector, given the lack of industrialisation and investment. A bitter irony when you reflect that the CPI-M’s Panglossian agenda had propelled the Trinamul Congress to power. With a stroke of the chief ministerial pen, 1.9 lakh government jobs are to be created three months after the start of this fiscal. This would normally have raised no cavil were it not for the fact that the fundamentals of planning have been left delightfully vague, chiefly the mobilisation of resources. Of which there was little or no indication when she unveiled the sudden bout of state-sponsored benevolence. She has made a deeply critical announcement through a verbal press statement; there is no indication that it is a carefully calibrated endeavour. A more breathless bout of unproductive public spending would be hard to imagine.
Unmistakable is the desperate anxiety to recover lost ground between now and the assembly elections through a quick-fix exercise. Nor for that matter will the announcement readily inspire optimism as the praxis of recruitment remains ever so opaque, if the entry tests for teachers is any indication. Small wonder that the announcement has not been greeted with the jollity as was expected by the party. On the anvil and without a time-frame is the programme to recruit 70,000 teachers, 60,000 Group C staff, and 60,000 Group D employees. Thus will the behemoth structure of governance be bloated further still, when a rational approach would have necessitated a measure of re-deployment, if not downsizing. The Chief Minister might, on the face of it, have ended the decade-long freeze on mass recruitment, imposed by the CPI-M and pre-eminently by its MIT-trained finance minister. Truth to tell, the crisis has deepened under a minister with a background of corporate networking.
While the level at which teachers are to be recruited remains an unknown quantity, the additional expenditure works out to Rs 154 crore a month. It needs to be underlined that in the primary segment, the Teachers’ Eligibility Test has already been reduced to a party-sponsored scam with Trinamul loyalists being recommended for appointment. Leakage of questions has forced the cancellation of the exam for entry to Industrial Training Institutes; hugely more scandalous is the photograph of a dog, instead of the candidate, on the admit card. In a word, the system has been scandalised even before the recruitment drive gets under way.
The additional outgo for the newly-recruited Group C employees will be a whopping Rs 84 crore a month. For the Group D category, the monthly public spending will be hiked by Rs 66 crore. Altogether, the state’s stuttering economy will be saddled with an additional expenditure of Rs 304 crore a month. In the net, this will entail a 7.5 per cent increase in the wage bill... for work that is scarcely tangible. And this will be over and above the expenditure incurred on private agencies, hired for cleaning and house-keeping at Nabanna. Which ipso facto renders the additional Group C staff partially redundant even before the appointment letters have been issued.
In the absence of other sources of revenue, Bengal proposes to utilise the 14th Finance Commission’s recent largesse for states substantially on the bloated wage bill, if not DA as well. The government must reflect on the income-expenditure paradigm consequent to a hugely hiked wage bill for a needlessly broadbased sarkari employment structure. Regretfully, development economics has been sacrificed at the altar of populism. Indeed, a judiciously crafted growth-cum-development agenda, buttressed with the Commission’s pump-priming, would in itself have taken care of the job market. Such prickly issues are unlikely to be addressed anytime soon. Overall, the economic “philosophy” is so facile as to have a deleterious impact on finances. Totally ignored in the process is the development imperative in the aftermath of the recommendation of the Finance Commission to devolve an unprecedented 42 per cent of the divisible pool to states for the period 2015-16 to 2019-20. Effectively, the total devolution to states will increase to 47 per cent of the divisible pool in the next five years from 39.5 per cent that was suggested by the previous commission.
Theoretically, the Centre’s decision in February - four days ahead of the national budget - ought to have neutralised Bengal’s carping over a bailout and a waiver of interest on loans. Of an effort towards resource generation, there is little; of an intent to widen the tax net even less. A prime example being the waiver on sales-tax on LPG, which in itself would have generated a fair amount for the exchequer. It would be useful to quote the Prime Minister’s note to the Chief Ministers on the increased devolution of funds - “This (the recommendations) naturally leaves far less money with the central government. However, we have taken the recommendations of the 14th Finance Commission in a positive spirit, as they strengthen your hand in designing and implementing schemes according to your priorities and needs.”
Other states will abide by the Centre’s revised paradigm; West Bengal is free.
Yes, the hand has been strengthened; there is without question more fiscal power to the elbow of the Chief Minister. Alas, the opportunity has been lost, however. The decision to expand the government’s already bloated employment base with the fresh tranche this fiscal could scarcely have been more disingenuous. As with many other segments of public policy, Miss Banerjee’s formulaic prescription is uniquely Bengal, intended to benefit an indeterminate group. It is never easy to bridge the gap between wish and fulfilment. Even as an electoral gambit, there is much to condemn and little to commend in this contrived fudge, designed to expand public service. In today’s Bengal, voters are unlikely to punish misgovernance, let alone economic illiteracy. More’s the pity.