India’s Interventionist Approach

Context: A critical analysis of building state capability in order to improve the efficiency in governance.

Issues in Building State Capability in India

• Precedence to economic reforms over administrative reforms: India delayed setting up of administrative reforms commission (in 2005) and prioritised dealing with the global financial crisis.
• India runs a boutique government: small relative to its needs but expensive relative to its income.
  • The size of the bureaucracy is too small (mainly clerical and too few experts); The share of general government employment to total employment is around 1%; lowest in Asia.
  • In India, the average wage of a government employee to GDP per capita is around 7, amongst the highest in the world, whereas in most of Asia that ratio lies between 1 (China) and 2.5 (Indonesia).
• Issues with bureaucracy:
  • Lack of in-depth expertise: Since bureaucrats are usually shuffled around, they have no time to develop the in-depth expertise needed to remain abreast of global developments
  • They often suffer from excessive political interference in their functioning.
  • Distorted pay structure: reduces capability and undermines effectiveness;
    • The upper end of the civil service — which has decision-making powers — has seen its real wages fall well below that of the private sector (which have risen and are more secure)
• Financial issues:
  • Proliferation of national flagship schemes: has blurred the role and responsibilities of the Centre and the states and diminished accountability.
  • Creeping recentralisation through cesses: by which the divisible pool is reduced (in the 15^th Finance Commission).
  • Lack of effective decentralisation: India’s share of local government spend and hiring is much lower than China.
• Issues with the judiciary: The judiciary remains small and arcane in its procedures; Judicial activism has amplified but is very selective and often at the cost of delays.

Way Forward

• Performance based civil service: Ensure professional and meritocratic culture in civil service through promotions based on regular testing rather than a time-bound lifelong sinecure.
  • Bringing a few lateral entry experts from the private sector is not the answer! There is much to learn from the civil service systems of countries such as Japan, Korea, Singapore and Taiwan.
• Redefine federal roles and responsibility: using the basic principles of subsidiarity.
  • For E.g On one hand, agencies with a few specific tasks — central banking (Reserve bank of India) and elections (Election Commission) (having discretion) are more efficient.
  • On the other, basic education or primary health care are high-volume transactions with little specificity and should be decentralised to local government for cheaper and better outcomes.
• Raise property taxes: to provide more resources at the local level without affecting state and central government revenues and help build “smart” cities.
• Bring judicial ref­orm: Digitise court system and records, hire more judges, and modernise system by increasing systems of arbitration and commercial courts.

Conclusion: Napoleon, who took on reformed France’s judicial system and gave us the Napoleonic Code, said it best: “Instituti­ons, not armies, determine the destiny of nations”.