The bureaucracy must do the right things, not just do things right, for growth to increase four times in ten years!
Mukul Sanwal | November 14, 2014
The prime minister’s call to 77 secretaries to the government of India to support a transformation as they prepare their budget proposals is timely. Linking it with ‘outcomes’, identifying deliverables and regular review meetings will not, however, lead to a transformation in the absence of hard political choices, identifying national priorities and re-allocating budgetary resources.
In developed mature economies the focus is on economic reform, while in the growing re-emerging countries budgetary allocations enable the success of economic reform, signal priorities for long-term investment and development of new markets. Clearly, aggregation of ministry strategies does not amount to a transformation and will not change pervasive mind sets, as bureaucrats gravitate to what they know already and generally defend the status quo. Longer term change and rebuilding needs a bold political vision of the future, for example, articulating the ‘Indian Dream’.
Modi has demonstrated in his foreign policy the capacity to recognise the emerging multipolar world order, question the ‘status quo’ and make hard choices in defining the national interest in terms of a set of ‘red lines’. For example, ending the peculiar situation of an aspiring global power being the world’s largest importer of arms and importing three-quarter of its defence equipment; making clear that diplomatic talks to settle the border requires absence of hostilities; and, willing to stand alone in the multilateral trade forum in the interest of ‘fairness’. A principled approach wins respect.
At the national level the situation is far more complex. The large mandate has found reflection in a principled stand with respect to politics – the negotiations with the Shiv Sena, abolition of the planning commission, reviewing bank directorships, focus on unearthing black money and the PM’s personal involvement in relief operations are examples. The National Security Adviser’s visit to Burdwan underlined a national concern and political priority. Similarly, the spread of the Aadhaar and Digital India will have significant spin-offs. These are important signals of the intention to bring about change, but do not amount to the transformation the country expects and the PM wants to achieve.
Transforming public administration
Public administration in India continues to be based on the colonial model regulating an agrarian society, supporting multinationals in metropolitan cities, with each state/province having its own regulations, and otherwise maintaining the status quo. The planning commission, based on the Soviet model of allocating resources, did not even seek a uniform administrative system across the country, left the old structures intact, added new ones and did nothing to change the philosophy of entrusting implementation to the lowest levels with detailed records and reporting to prevent misuse. The near collapse of the criminal justice, land revenue and municipal administration to respond to a growing population, rapidly rising price of land and exponential growth in the number of transactions has not been helped by digitisation of existing procedures and regulations that were designed for a very different purpose. What is needed is both pan-India administrative reform and digitisation to develop a seamless national system for citizen interface and use of big data for governance – which is very different to the current approach of allocating funds to different ministries and states without regard to national priorities.
Discretionary plan funds also meant that solutions to emerging problems were sought through subsidies, regulation and new bureaucratic arrangements, which dealt with the political problem rather than solving the problem itself. The result is that every ministry in the state now has a counterpart in the central government which in turn designs schemes that require plan funds, irrespective of the allocation of functions in the federal arrangement. This approach to governance also blurred the distinction between regulatory and development roles, and each scheme has developed its own vested interest down to the grassroots level, thinly spreading scare resources in a web of patronage. The planning commission recognised the problem it had created but ended up dealing with the symptoms and not with the causes in clubbing schemes; for programmes such as MGNREGA ignoring its own review that only half the mandated days of employment were provided, half the works remained incomplete and payment delays extended to twice the prescribed period. These subsidies did not pay the political dividends that the schemes were designed for. An entirely new strategy is needed to meet the aspirations of the rural poor replacing the rights based approach with infrastructure, services and the conditions for meaningful self-employment.
In addition to policy development and implementation the roles within government remain archaic. The Administrative Reforms Commission (ARC) in its 15th report on State and District Administration, issued in April 2009, agreeing with the earlier recommendation of the ARC in its 10th Report, stressed the need to prepare a Civil Service Act. The ARC in its 10th report had also examined the relations between the political executive and civil servants, and pointed out that “there is need to safeguard the political neutrality and impartiality of civil services”, stressing that the “onus for this lies equally on the political executive and the civil services”, and suggested that this aspect should be included in the Code of Ethics for Ministers as well as the Code of Conduct for Public Servants.
Transforming the budget
We have reached a stage of development where “inclusive growth” should be defined in terms of the “Indian dream” of moving into the middle class. It can then be argued that the vast funds spent on subsidies really keep the poor in villages and slums, whereas shifting allocations to infrastructure, urban design and employment generation will benefit them much more over the next ten years. It must be put to farmers that land use change is an essential element of economic growth to enable movement of rural population to urban areas and non-agricultural employment, as three-quarter of future growth will come from cities, and the discussion should be on how they will share the benefits.
According to an analysis of economic trends by the OECD, the think-tank of the developed countries, around 2030 Asia will be the world’s powerhouse just as it was prior to 1800. In addition to changes between States there will be changes in country shares of global GDP, largely driven by ageing populations. China will surpass the US by 2016 to become the largest economy in the world. India’s GDP will equal that of the Euro area in 2030 and in 2060 it will exceed that of the US, increasing from 11% to 18% as a share of global GDP while China’s share will remain at 28% during this period, as its dependency ratio will quadruple, and the relative share of both the US and the Euro area will decline. The working age population of China has peaked, while India has half its population – 650 million people who are less than 25, out of which 400 million are less than 15 years old, presenting a very different set of challenges compared with the other powers.
The transformation that Modi is seeking responds to these demographics and will need a political vision of the future as the long term goal against which the next budget should make the allocations; a bottom-up process will not lead to a transformation. For example, the national goal to quadruple GDP in the next ten years will be through use of energy, infrastructure development, urbanisation, industrialisation, development of the services sector and the resulting employment. Modi must make clear that he is setting an ambitious target; for example, the vision that by 2025 between two-third to three-fourth of the population should be in the urban middle class - the ‘Indian Dream’. The West achieved this in the 1970s and China will do so around 2020. If China can do it so can we, and our strong services sector will facilitate the population shift out of agriculture. The debate then will be on the strategies, priorities and instruments, and that is where the PM must focus his energy and that of his government.
The finance minister must have a template to scrap schemes that the central government not should be involved with, review those that have lost their relevance and identify areas where priorities have changed. The entire edifice of subsidies needs review to make them outcome oriented, and begin a debate around their phasing out as urbanisation accelerates and the rural poor move into the urban middle class.
Systemic change is needed in other areas, which the secretaries may not raise. For example, the army sought 155-millimetre howitzers with characteristics that are now widely acknowledged to have been unrealistic, raising the strategic question why we do not import equipment being used in other armed forces and go for technology transfer and upgrade it ourselves, as designing the specifications is the primary cause of delay and corruption (e.g., the VVIP helicopters), and the Integrity Pact deals with the symptoms and not the causes of the problem. Second, deleting obsolete laws is not reform; it is resolving an anomaly. What is needed is a political decision on the long term regulatory strategy to support infrastructure, urbanization, industrialization, services and knowledge based economy and the movement of the rural poor to middle class levels of living. It is in this context that basic questions need to be asked about regulations that support or impede capital intensive projects and related systems, learning from the experience in other countries. Third, the arrangements we take for granted also need to be questioned – whether the police are a ‘force’ or a ‘service’ becomes relevant in an urbanized middle class society, it raises questions why we are not able to separate investigation from prevention (the term ‘law and order’ remains unique to India) and have an independent prosecution agency; computerization of land records remains incomplete without linkages with deeds registration and cadastral mapping; computerization of courts is not about information on posting of cases but putting the order sheet online and monitoring delays; streamlining tax procedures requiring eliminating the use of multiple PAN Cards with minimum prison terms for offenders using multiple cards; delay in laying the pan-India fibre optic connection when sufficient funds are available is inexcusable, and broadband speeds, average and peak, need to be increased five times.
Hard political choices also have to be made to define the direction in areas where a transformative impact is possible, or needed, and act as a compass for decision making. For example, should we continue to see military strength in terms of conventional capabilities – tanks, aircraft, ships – or in terms of space, missiles and cyber warfare, where alone we have strong endogenous capabilities? We should leverage our world class software industry and focus on cyber security and warfare, which has both defensive and offensive capabilities, for example, our own search engine (like China’s ‘Baidu’) and spread our own ATM card (RuPay) on our own servers.
Similarly, we have the capacity for global leadership in pharmaceuticals and new crop varieties, as we are the only country with both extensive endemic biodiversity and a world class endogenous biotechnology capacity. Along with global leadership in software development, we should develop treatments and solutions for problems, also shared with other developing countries which will gain their respect, enabling productivity gains for us.
India will have to reconstruct international relations theory to support a new model of sustained growth different to the finance led US consumption and Chinese production based models. A shared vision of prosperity for four billion people in the world who have yet to benefit from globalization will provide the legitimacy to reshape the future global order to overcome global ecological limits and avoid conflict.
In the most important internal security problem we face, we continue to test different strategies to deal with the Maoists because there is still no clarity whether the fundamental conflict is over the distribution of natural resources or the distribution of political power. While formally supporting the concept of winning the ‘hearts and minds’ of the people, the approach so far is better characterised as an ‘enemy centric’ strategy, and the successes are questionable. The report of the task group on development of scheduled castes and scheduled tribes, set up by the planning commission in 2005, pointed out that forest lands in occupation of tribals should be regularised and the onus of proving wrongful occupation should be with the department and not with the tribals, and legislation needs to be reviewed on ownership rights to minor forest produce to gram sabhas because the life of tribals “revolves around forests”. Despite this recommendation, six years later, the 2011-12 annual report of the ministry of tribal affairs recognises that the incidence of rejection of claims under the Forest Rights Act remains high. Notification of community rights over forests has not been done in the districts affected by violence; it would require industry to share profits with the local population, and could be a reason for the inaction on the part of the State. Also, the answer to the human problem lies in defining rehabilitation more broadly to share the substantial gains from mining, and not blocking development.
Modi has rightly stressed 100 smart cities, linking of rivers and developing high-speed rail links but without developing a conceptual framework to integrate them, as they could well follow the same alignment and develop significant synergies, cost savings and economic returns from the opening up of new areas for mineral exploitation, industry and towns. It will also be important to explain their important in conserving natural resources, generating growth, employment and protecting us from climate variability and change. The use and distribution, not scarcity, of natural resources is sustainable development.
The limiting factor for economic growth in the future will be availability of natural resources. The use of natural resources in the urbanization process is largely determined initially by the density of the urban structures and subsequently on a continuing and increasing basis by the level, and lifestyle, of human wellbeing, or income, and, for the industrialized countries each of these factors, looked upon independently, was responsible for roughly a doubling of the rate at which resources are used.
Urban design and related consumption patterns explain the different levels of natural resource use even for countries at similar levels of well-being. For example, Japan and many European countries use half the resources, about 13 tons/ capita, as compared with the USA, Australia and Finland, even though levels of income and wellbeing are not very different. Trends in developing countries are similar, with countries such as China and India using resources at the rate of about 5 tonnes/capita in the year 2000, compared to Brazil and South Africa, where the resource use is almost two times that level. Densely populated areas need less construction material, use public infrastructure more frequently and thus more efficiently and have less need for transport fuels, save space and provide more efficient supply of energy for heating or cooling of building. More dense forms of living enable for lower consumption of many natural resources at the same levels of material comfort. For example, the emissions in New York City are one-third of the average for the US. These considerations should shape our own urbanization.
India is at a defining moment where we must recognise that we have the potential to be the leading economy in the world. We must also recognise that to move out of the mindset shaped by British colonialism and Soviet Planning, we need to seek new ideas from more vibrant economies like China and Germany, to make hard political choices and set priorities at different levels of governance. The budget should reflect these choices; it will not be easy because studies show that in the absence of a compelling vision 80 percent or more of the resources tend to be re-allocated.