V. Ramani's web I AM, THEREFORE I THINK

There was a lot of congratulatory backslapping in the government and mass media recently when huge amounts were realised from the sale of telecom spectrum, auction of coal blocks and the divestment of government interest in the public sector. Lost in all this noise was the signal it conveyed: that, for government and, indeed, for large sections of the Indian intelligentsia, short-term material gains are far more important than the presence of investors in crucial infrastructure sectors over the long haul. No one tried to analyse the impact of the successful bids in terms of their implications for prices for the consumer or for the sustainability of the project for the investor. Public policy actions in India have almost always seemed to live up to my favourite lament, which has appeared in my blogs on more than one occasion: “don’t kill the goose that lays the golden eggs.” It is time, therefore, to analyse this revenue mania in the light of recent actions and decisions taken not just by government but by other institutions of the state as well and the approval these have received from the media and from what one would have thought were better-informed sections of the thinking classes.

The recent efforts by the Petroleum Ministry to tinker with a thirty-five year old revenue model for oil and gas extraction are but a continuation of its attempts to renege on the sanctity of negotiated, signed contracts once these contracts reach the stage where petroleum revenues start or are likely to commence flowing soon. Behind these moves are what I would term a paranoia related to short-term revenue accrual, long-term economic interests be damned. In the case of the acquisition of Cairn India by the Vedanta Group, the Government of India successfully extracted its pound of flesh in terms of imposing payments of royalty on oil and gas, from payment of which companies had been specifically exempted in the contracts of the early 1990s to encourage investment in risky exploration activities. This represented nothing less than a violation of a signed contract by a government. As if this was not bad enough, the Government of India reversed its policy on allowing private companies to market their share of gas produced under the New Exploration Licensing Policy, in breach of accepted contractual provisions. It played along, for reasons best known to it, with the Supreme Court view that, as the owner of the natural resource, government has the right to decide the end-consumers, when accepted international practice is that once the oil/gas reaches a particular delivery point, ownership of the resource devolves in the agreed percentages to the government and the contracting producing parties. Extend this logic to the mining of other natural resources like coal, bauxite and copper and you are back in the heyday of the license-permit raj of the 1960s and 1970s, when government decided who would produce and who would consume a particular resource. As the Government of India got sucked into the Ambani family war (of which more in a subsequent blog), it started to get more and more defensive about the exploration and production contracts signed by it over the years with private parties. Not to be outdone in adding its two bits to the management of petroleum contracts, the Comptroller & Auditor General (CAG), the audit watchdog of the government, weighed in with advice on how petroleum operations should be carried out and what constituted acceptable expenditure. Given the lack of knowledge in India’s legal and financial fraternity (especially in the government sector) about the economic and technical niceties of petroleum exploration and production, it is not surprising that private investors found themselves caught in a bind, with a harried government refusing to clear payments of company dues. The situation has come to a pass where the government is apprehensive of resorting to arbitration and obtaining expert opinion to resolve contractual issues: given the level of mistrust and suspicion about a subject that most of those taking decisions have very little understanding about, only a very brave person would stick her neck out to take bold decisions.

I am sorry for dragging you through a subject with which I have been connected for the past quarter century. But I am using this example from a crucial infrastructure sector to draw your attention to a serious lack of economic common sense in not only the government but other pillars of the establishment as well, which is fraught with grave consequences for the future economic development of India. Let us dwell for a moment on the disinvestment of government stakes in public sector gems like the Oil and Natural Gas Corporation, the Steel Authority of India Limited, Coal India Limited and Bharat Heavy Electricals Limited. The aim of any disinvestment should be to broaden the shareholder base and makes these companies more market-responsive. Instead, with government, and its captive institutions in the insurance and finance sectors, controlling over 70% of the shares, there is no change at all in the archaic decision making processes installed in these enterprises in the past, despite cosmetic changes in “granting autonomy” to these units that make no difference to their operational and managerial efficiency. Appointments to top managerial positions still go through a tortuous process, often taking months on end while prospective candidates lobby for posts. The fear of decision making in public sector enterprises arises from the dread of the big three C’s: the Comptroller and Auditor General, the Central Vigilance Commission and the Central Bureau of Investigation. As a manager, attract the attention of any of these three worthies and you can kiss your peace of mind goodbye for the next couple of decades. An example will suffice: the public sector National Thermal Power Corporation (NTPC) was to get gas for its power plants from the gas fields operated by Reliance and its partners in the offshore Krishna-Godavari basin. For various reasons, their gas sales agreement could not be concluded and is still to date embroiled in legal squabbles. Any sensible power producer would have recognised the time value of money; besides, NTPC was in a position to get liquefied natural gas on a 17-year term contract from Petronas, the Malaysian producer, for US$ 3.50 per million British Thermal Units (million BTU). But just imagine the furore if NTPC had opted for gas at US$ 3.50 per million BTU instead of the agreed effective price with Reliance of US$ 2.97 per million BTU; there would have been allegations of a sell-out and someone from NTPC would have lost his head. So NTPC played safe and continued its courtroom wrangles with Reliance. But power projects cannot wait for fuel indefinitely, so NTPC went in for spot market purchases, where it is today paying US$ 10-14 per million BTU. A greater criminal wastage of finances is difficult to imagine, but when tied up in the embrace of government, all is possible.

We need to analyse the reasons for this unspeakable economic illiteracy, not only wasting scarce investible resources but acting as a drag on the economic future of the country. Essentially, the post-Independence period has been characterised by the dominance of four interest groups: the landed elite, the rentier businessman/industrialist, the trade unions and the urban middle class. The 1991 reforms hardly dented the influence of these groups. The landed elite is interested in paying no taxes, having access to heavily subsidised water, power and fertilisers and an assured minimum support price for their produce, with suitable increases over time. The rentier businessman/industrialist has drawn on his “know-who” rather than his “know-how” to corner, in recent years, scarce natural resources like land and minerals. The less said about the trade union movement in India the better: they represent a fraction of India’s labour force and, through their stubborn opposition to labour law reform, have denied large swathes of Indians access to relatively secure, well-paid jobs in a growing industrial sector. The vocal Indian urban middle class is the two-faced Janus: while they seek aspirational lifestyles for themselves, their “bleeding heart” liberalism prevents them from allowing the extension of this privilege to their far less fortunate and far more numerous countrymen and women. Thus, whether it is a sensible land acquisition policy that gives manufacturing industry quick access to land, a labour law policy that gives far better employment opportunities to India’s growing unemployed and underemployed or a foreign direct investment retail policy that enables the farm producer to control the disposal of his produce besides adding value through the reduction of wastage, there is a shrill cacophony each time these issues are debated. Listening to the declamations of politicians and other self-styled experts can make you despair about the chances of any coherent economic policy.

It is then that the first doubt starts to set in: is all this posturing more to do with hypocrisy rather than illiteracy? In my years in government, I have seen politicians run successful businesses of their own, especially in the cooperative sector in Maharashtra. But put them in charge of the government and they successfully run it aground in the space of a few years. Clearly, private thrift does not extend to public prudence. Our search for the great leader who will lead us out of this morass is fated to be doomed. What we need is something more on the lines of the English Glorious Revolution of 1688, when the wealth-creating classes established their ascendancy over the wealth-preserving classes. What India needs today is a coalition of interest groups dedicated to the creation of wealth with, of course, the incorporation of social security measures that have evolved over the past two centuries. What it needs also are governments at both the national and state levels that steadfastly pursue this goal, unmindful of electoral consequences. Failure to do so can have very grim consequences. India is adding 13 million unemployed to its rolls every year. The consequences of this waste of human resources are beginning to be felt in the Maoist insurgencies in Central and Eastern India, which have access to a ready supply of disaffected and angry youth who have no connect with the Indian economic system. With growing urbanisation, this restlessness is spreading to major urban pockets. It is time India’s governing elite realised they are sitting on a series of time bombs which can go off at any time and any place. So my advice to them would be: stop this tinkering with welfare schemes and empower the people through bold reforms. The time for action is NOW.

January 2015 has been a watershed month for the Indian political system. A David has single-handedly slain not one, but two Goliaths. Delhi witnessed scenes of exultation probably last seen after the defeat of the Congress party in the 1977 general elections. As the Chief Minister and his Council of Ministers seek to come to grips with governing a highly complex metropolis, a number of question marks will inevitably raise their heads. These arise after going through the party’s manifesto for the Lok Sabha elections (“the Manifesto”) as well as its 70 point Action Plan for Delhi (“the Action Plan”). Though the former gives pointers to the overarching strategy of the Aam Aadmi Party (AAP) in its search for a national presence, it is the latter that assumes more immediate relevance, since the day has dawned when promises will have to be translated into performance. Without wanting to sound like a modern-day Cassandra, I see three areas where AAP will need to clarify its approach, if it is to meet the aspirations of the people of Delhi and emerge as a viable national alternative by 2019.

The first relates to what may be termed an “anti-institutional” worldview. The AAP was born out of the ferment of the Jan Lokpal agitation of 2011. At that time itself, the effort of the agitators was to virtually stampede the government of the day and Parliament into passing the Jan Lokpal Bill as formulated by them, without debate and without taking other points of view into consideration. It is true that the speed of functioning of all public institutions in independent India is enough to drive any Indian to tears. Still, that does not justify an attempt to push through legislation which, if enacted in its proposed form, could have impinged on the right to liberty of the citizen. The Manifesto and the Action Plan repose their confidence in the very same, unadulterated version of the Jan Lokpal bill, which vests enormous powers in an individual, virtually ushering in a fresh era of the Jacobin Terror with the Lokpal as Robespierre. Not only that, the Manifesto also talks of seizure of assets of corrupt judges. The very foundation of a democracy based on separation of powers would be shaken if the judiciary is sought to be regulated by an outside agency. In fact, the thrust of AAP seems to be on punishment of errant individuals rather than the reform of outdated laws and systems that, coupled with a judicious use of information technology, could vastly circumscribe the scope for corruption.

A second area of concern is the apparent disregard for the principles of sound public finance. The Action Plan promises many concessions and substantial public expenditure on items ranging from concessional power and water to toilets, education, healthcare, housing and social security. The emphasis appears to be on the government as the sole provider, without any involvement of the private or non-profit sectors. Services are sought to be ramped up by increased public employment, without analysing why existing staff (which is considerable) has not been able to deliver, especially in the crucial health and education sectors. There is no mention in the Manifesto of the large, often dysfunctional public sector that bleeds the financial resources of the country and what steps will be taken to make it more efficient. Also, while the poor implementation of social sector schemes has been mentioned in the Manifesto, there is no elaboration on whether these schemes will be redesigned to plug leakages and reach those really in need. The Action Plan also talks of introducing the lowest VAT rates in Delhi. Put all these together and what you are headed for is a huge budget deficit. Delhi may still survive on hand-outs from the central government, but the picture will change for the worse if AAP seeks to run any other state government or, indeed, the central government, on the same financial principles.

The third area of unease relates to the likely impact of AAP’s economic policies on growth. In its Manifesto, AAP talks of placing India on “a sustainable, equitable, globally competitive and high-growth trajectory”. The Action Plan wants a “Delhi that is prosperous, modern and progressive”. But a number of points in the Action Plan are calculated to make private investors wary. It opposes contractualisation of labour and supports permanency of employment in jobs that require round the year employment. While this has been stated in the context of public sector employment, it is quite likely that the same dispensation will extend to employment in the private sector as well. This is going to dampen private investor sentiment; companies need to have the flexibility of ‘hiring and firing’ in a globalised economy (of course, with social security mechanisms and job/skill retraining opportunities). The Action Plan opposes FDI in retail; this is in line with what the party calls “trader-friendly policies”. The problem is that policies which meet trader interests often act against the interests of farmers and organised industry. The repeated references to “crony capitalism” and “encouraging honest businessmen and traders” seem to indicate a mistrust of large-size businesses. Again, one needs to stress that strong institutional mechanisms, including competent regulatory systems and simplified procedures, are crucial to checking corruption. India has an abysmal record in the speed of starting and ease of doing business: one certainly looks forward to the end of the Inspector Raj, enunciated in the Action Plan. Finally, the budget deficits inherent in a populist economic approach and the consequent increased government borrowing will have its adverse impact on private sector access to low-cost capital.

This is not intended to be a critique of AAP’s policies, just a flagging of some concerns that are too often given short shrift by intellectuals and the media in the first heady flush of victory. The AAP has been given a historical mandate. “Aap ki Kasam” can be translated as “on my honour”. To honour its commitment to good governance, AAP needs to adopt a pragmatic and non-confrontational approach to issues, guided by economic realism and political and social realities. It’s progress in national politics will be determined by its success in managing its government in Delhi. To the extent that it is able to do this, it can have voters on a larger platform crooning (in 2019) that popular song from the film Qurbani:

आप जैसा कोई मेरी ज़िन्दगी में आए, तो बात बन जाए…

(If someone like you comes into my life, then my life is made)

For those uninitiated in the intricacies of getting into the higher echelons of the Indian bureaucracy, CSAT stands for the “Civil Service Aptitude Test” — a test at the preliminary stage for assessing the suitability of aspirants for “India’s steel frame”. Much energy was expended earlier this year by civil service candidates in protesting against the inclusion of a mandatory English proficiency portion in the CSAT. While the opposition was ostensibly to the unfair advantage conferred on urban-type English speakers, the doubt was raised in certain quarters as to whether the protest was against the test of aptitude, which militates against the time-honoured rote method of ingesting and expurgating information, without using reasoning abilities. However, the present blog is limiting itself to the issue of language, a vexed issue in a polyglot society, ever since Pandit Nehru and C. Rajagopalachari first grappled with the issue of formation of states based on linguistic considerations.

The subject gained fresh impetus when the Education Minister backed the introduction of Sanskrit at the expense of German in the Kendriya Vidyalayas. This storm unfortunately unfolded when the Prime Minister was meeting his German counterpart in Australia, earning him a free lecture from Frau Merkel. The issue generated even more nationalistic emotions, with various politicians harking back to our glorious traditions. Forgotten was the abysmal quality of Sanskrit taught in schools: I speak from personal experience. In my middle school years, I was exposed to Sanskrit as the third language, after English and Hindi. Our teacher, one of Delhi’s well-known theatre figures, tried hard to get the language into the skulls of forty riotous boys, for whom India’s beautiful ancient language was just one more subject in which pass marks had to be secured. The wonders of declension and grammatical construction passed us by and we ended up with little or no knowledge of the language. I doubt if most of us can read Sanskrit or appreciate the beauty of the language. I have been a little more fortunate; subsequent exposure to devotional songs and religious texts enabled me to acquire at least the ability to understand Sanskrit texts.

Why talk only of Sanskrit: all languages are taught extremely poorly in most schools, with the result that we are unable to put together a coherent paragraph in any language. I thought our problem was only with the English language till I encountered notings in Marathi on government files in Maharashtra which revealed the shoddy quality of even written Marathi. In fact, using language (any language) to express oneself cogently and clearly is a dying art.

Language has always been the medium for transmission of ideas and knowledge. Before Gutenberg initiated the printing revolution, knowledge was conveyed from one generation to another solely through the spoken word: hence the term “smriti“, which refers to the traditions and wisdom passed on from master to disciple – the mind was the manuscript. Ancient scriptures were thus preserved: this has probably contributed to the Indian’s phenomenal memory, reflected in our emphasis in today’s education system on rote learning rather than critical thinking.

So what is a practical approach to language in a country boasting of over five hundred languages, as per a recent survey? From before Indian independence and, again, fifty years back, the attempt to impose a national language by executive fiat came a cropper, with anti-Hindi riots breaking out in Tamil Nadu. The situation on the ground has undergone a sea change since then. Large-scale interstate migration to avail of employment avenues has made most Indians multilingual. It is fascinating to hear a burly Sikh speaking Tamil with no trace of an accent; one has to, of course, hand it to the Marwari businessman, who can pick up the local language after a short stay in any state. For that matter, sheer survival instincts prompted my quick adoption of the Marathi language. The prospect of signing a government file with Marathi notings which I did not understand filled me with dread.

The best (also most pragmatic) approach would be to offer a wide variety of languages, both Indian and foreign, with excellent facilities for both online and offline learning. If you (and your children) are going to be staying and working in Karnataka for the next thirty years, you are hardly likely to opt for Gujarati. If your offspring is planning to look for employment opportunities in Serbia or neighbouring countries, there is no reason why she should not become proficient in Serbian or Serbo-Croat languages. If you travel extensively in India, especially in the north, you will, of necessity, have to acquire adequate proficiency in Hindi. Whether one likes it or not, the vast majority of Indians (all of whom aspire for upward mobility) are going to want to learn the English language. Rather than demonise the teaching of English, it would make far more sense to offer quality English language courses, with well-trained teachers. Today, if you want to learn even an Indian language, there are very few good online courses imparting written and spoken language skills.

What, one may ask, will be the language of communication in government offices? In Government of India offices, it makes far more sense to conduct business in English, since there is going to be a large volume of communication with the world outside India. I could never understand the inanity of notes for the Cabinet of Ministers in Delhi being prepared in both English and Hindi. The Hindi copies, faithfully distributed to all Ministers, were read only by a small proportion of Ministers from the Hindi-speaking states. It would have saved many trees if each Minister had been asked to state her (or his) preference for either English or Hindi, with only those many copies being printed. Ministers from non-Hindi speaking states are generally quite comfortable with English and conduct most of their business in English. In the states, the local language spoken by the majority of residents can be the official language for conducting government business, as is the case even today. The inexorable pull of the market will inevitably decide which language(s) will gain prominence. States are today actively selling themselves as investment destinations; a state whose bureaucrats and politicians are not able to communicate effectively is going to fall behind in the sweepstakes.

Finally, I wish to dispel the myth that making a particular language the medium of instruction is going to turn out students fluent in that language, let alone instil in them a love for the rich literature that is the heritage of all Indian languages. It is more desirable to have a hundred students fascinated by and conducting research on Sanskrit texts than to have ten thousand students who painfully scrape through the language with no intention of ever returning to it. If knowledge of German is going to open avenues of knowledge and employment in one of the world’s great economic performers, why deny Indian students a piece of that very scrumptious cake?

A relative of mine recently wanted to bring her 11 year old pet dog on her annual visit to her family in India. She came up against the latest instance of bureaucratic obduracy that is the hallmark of Bharat Sarkar. The regulations of April 2013 allow the entry into India of only those pets whose owners are shifting residence to India after a continuous stay of at least two years abroad. But the killer clauses came thereafter: no one on a tourist or business visa could bring their pets into India, regardless of the period of absence from India. What was dogging our policy makers became clear to me after searching the net and talking to the representative of an agency that handles import and export of pets into India. Apparently, breeders were using the tourist visa facility to merrily bring dogs into India, adding to an already huge canine population. The solution was the typical sarkari one of using a sledgehammer to kill a fly (sorry, dog!): you may enter the country with up to two pets, but only if you are relocating to India. When I brought to the agent’s notice the fact that the dog in question had been a regular visitor to India from 2003 to 2009 and had a valid certificate of export from India, she relented to the extent of saying that the dog could be imported via Bengaluru or Mumbai airports, but not Chennai, since the animal quarantine authorities in the latter had doggedly refused admission to even one pet ever since the 2013 government circular came into force. It was game, set and match to the animal quarantine authorities once it was established that my female relative could not bring the dog as accompanied baggage, since the name on the last export certificate was of her husband.

I thought thirty years in the Indian bureaucracy would have inured me to all its foibles and idiosyncrasies, but the latest example of masterly bureaucratese left me dumbfounded. Four years after leaving the hallowed portals of government, my own brushes with the bureaucracy have convinced me that it is a zero-sum game, zero for the citizen and all for the government. Take the KYC norms, termed “Know Your Customer” but which I interpret as “Keep You Confused”. Early in 2011, I was told that I had to fulfil KYC norms to be able to operate my bank account, demat account, etc. Then followed the tiresome routine of gathering documents to prove my existence and place of residence. Just when I thought I had finally laid this ghost to rest, my bank manager told me in 2013 once again that the KYC formality had to be gone through. Apparently, there is some lurking suspicion in Bharat Sarkar’s mind that I am operating ghost accounts under a fictitious name and address.

Let us take a third example: suppose you run a business with an income-tax permanent account number (PAN) and a service tax registration. These two taxes (one direct and the other indirect) are administered by two departments coming under the same Ministry of Finance. And yet the entire process from registration to payment and filing of returns is handled by two agencies, with two websites, separate processes and separate returns filing systems. Add to this the payment of state-level sales tax and local taxes on shops and establishments and you have a veritable nightmare of departments and offices, not to mention personnel, with which the businessman has to deal. With (hopefully!) the introduction of the goods and service tax (GST), the multiplicity of taxes will be reduced. But don’t bet on life becoming simpler: some taxes at state and local levels will continue and reporting requirements to multiple agencies may still be required.

The final icing on the bureaucratic banana peel is the eternal Aadhaar scheme. When there was already an identity card in the shape of the PAN card in place, was there really need to introduce another identity card? Votaries of Aadhaar will immediately point to the likely misuse of PAN cards and how the biometric identification of Aadhaar cards will eliminate duplication and false registration. But is this really so? We have instances where animals and inanimate objects have been vested with Aadhaar cards. What is to prevent an individual from registering for Aadhaar cards at four different locations? Is there a mechanism which will identify that the biometric identification has been duplicated on more than one Aadhaar card? In any case, could the biometric identification (presuming it is technologically fool proof) not have been built into the PAN card registration process itself to reduce the number of identity proofs that an individual has to carry? What will be the relevance of the Aadhaar card for those sections of the population that do not need to or wish to avail of any benefits from the government? I would be most happy if I received some enlightenment on these issues from a more-Aadhaar educated person.

The problem, I think, lies with our innately suspicious nature as Indians, particularly if we are required to deliver a public service benefit. We are convinced that the other party is, through some jugaad or the other, going to acquire some benefit. In the process of making the process foolproof, the bureaucracy builds in provisions that make it willy nilly impossible for the ordinary citizen to comply with. Two consequences result: either the scope for discretion (and, hence, corruption) increases, creating new markets for the ubiquitous Indian dalaal, or the citizen decides to simply ignore the irritating provision, probably one reason why service tax is evaded by large sections of professionals. Simplifying tax regimes and reporting requirements as well as making access to public services easier would encourage compliance and strengthen the case for more punitive actions against wilful evaders. There has been a lot of storm in recent days on the kissathon in different cities; what government agencies need is also a KISSathon, KISS standing here for the well-known “Keep It Simple, Stupid”.

It was Mario Puzo’s book “The Godfather” and related readings on the Sicilian Mafia that made familiar to me the term “Omertà“. It referred to the restriction imposed on any member of the Mafia on maintaining silence even in the face of third-degree interrogation by the police. Any infraction of this code was punishable with death. This practice, prevalent in the Sicilian gangs, spread to American shores when waves of Italian migrants landed up in the USA in the late nineteenth and early twentieth centuries, and frustrated efforts to get at the real “godfathers” of illicit operations ranging from bootlegging and prostitution to narcotics. As I reflect on the phenomenon of corruption in India, I am struck by the very similar code of silence that prevails in transactions in India which are mediated by corruption in its various forms.

Let us recognise that corruption in India is a “womb to tomb” cycle. It begins while the child is still in her mother’s womb. Just imagine — if the child, like the mythical Ashtavakra, were blessed with the gift of imbibing every conversation even before she was born, she would hear the medical personnel at the public hospital asking the mother and her relatives to part with money to avail of the maternity facilities in the hospital. Thereafter, the karmic cycle of corruption unfolds at every stage of her existence, from the bribe paid for getting the birth certificate to the “donation” extracted at the time of school and, subsequently, college admission. The lifetime investment in the corruption machine takes place when the person has to grease her way into a job in the public services. Thereafter, the public functionary is engaged in recovering her past costs as well as providing for her (and her future generations’) material comforts, through means, legal and illegal. Finally, the cycle is complete when corruption oversees the issue of the death certificate and the process of transfer of assets to the next of kin.

What is noteworthy of the “corruption chakra” is the spectrum of silence that covers its functioning. To paraphrase Portia in the Merchant of Venice —

“The quality of corruption is not strain’d,

It droppeth as the gentle rain from heaven

Upon the place beneath: it is twice blest;

It blesseth him that gives and him that takes…”

Both the bribe-giver and the bribe-taker are aiming to participate in a “win-win” situation. Let us take the example of admissions to the pre-primary class in any private school. Every school thrives on the anxiety of parents to secure admission to a good school for the next thirteen years by charging a hefty entrance fee. Since this is not permitted by the state education authorities, the practice is to pay most of or the entire amount in cash, often through a broker, to the school. Both parties are willing accomplices in this generation of black money. Or take the case of any real estate transaction in India. The quantum of “black money” payment outweighs by far the cheque or “white money” paid. Try to insist on full payment by cheque or bank transfer and you get either a polite shove-off from the other party or a reduced offer. In the case of public functionaries, the procedure can vary from a weekly payoff to the superior (hence the term “hafta“) to case by case transactions, as in bribes for procuring driving licences, either through touts (euphemistically called “driving schools“) or through direct payments, to even part payment with the promise of future revenue deliveries, as in the auctioning of government posts. At the highest level, the cornering of scarce natural resources (land, minerals, etc.) requires a continuous, smooth working relationship between the benefactor and the bidder. Implicit in all these transactions is the “honour among thieves“. Once the trust is violated, either party takes steps to get the other party implicated, either through an anti-corruption trap or through anonymous/third party applications/PILs highlighting misdeeds of the concerned offending party.

A simple formula has been devised by Klitgaard (1998)^[1] to describe the extent of corruption in a system:

C = M+D-A, or Corruption equals  Monopoly plus Discretion minus Accountability.

A socialist economy will see the existence of monopolies in a wide range of activities, ranging from coal and steel to telephones and motor cars. Given the limited number of producers, there will inevitably be a mismatch between supply and demand. The person allocating the good then has the discretion to favour one person over another, generally for a monetary consideration, or even on the basis of caste and kin relationships. A hybrid “socialist” economy like India’s, with its entry barriers in various sectors, develops its own version of the applicability of this formula. Industrial licensing for the private sector in various areas from the 1950s onwards gave the bureaucrat (and politician) control over who got the licence. The more recent example is the mechanism for allocation of coal blocks to end-users, recently struck down by the Supreme Court. With the state having the exclusive right of disposal of coal blocks, there was considerable discretion in the allocation process. While there may or may not have been mala fide in the process, the arbitrariness of the procedure attracted judicial criticism. Monopolies can be reduced through the introduction of competitive processes. The telecom and automobile sectors in India are examples of how choice has empowered the consumer and removed influence peddling and gathering of economic rent in these sectors. Not that monopolies can be totally wished away. Just think of the police force or the natural resource extraction (coal, metals, petroleum, etc.) sectors. The checks on these monopolies operate through the limiting of discretionary powers through use of technology and transparent bidding processes. Enabling filing of criminal complaints online removes the discretionary power of the police officer to register (or not register) the complaint. Granting extraction rights through an impartial bidding process ensures that the party giving the greatest economic value to society wins the bid. Of course, no system can be immune. Just think of the goodwill money paid to the police constable who comes for the passport verification and the on-money paid to the person who delivers the cooking gas cylinders. But, to a considerable extent, the enforcement of accountability in actions and the increasing use of mobile/online payments (think mobile wallets) can curtail the scope for discretion even further.

In the final analysis, it is the enforcement of accountability that acts as the greatest check on corruption. But as long as there is complicit collusion in the act of bribery between the giver and taker, it will be difficult to reduce corruption. This requires action on three fronts:

1. Procedures for service delivery have to be clear to the service recipient. She should be aware of the time within which the service is to be given, the exact cost of the service and the redressal mechanism available to her in the event of service delivery failure. Public agencies need to specify these procedures on their websites and use mass media to educate consumers on their rights.
2. The consumer has to assert her right to timely service delivery at the officially approved cost. It is here that the code of silence has to be broken. Where there is overcharging for services or there are attempts to delay service provision in the absence of sweeteners, social media should be extensively used to highlight instances. Websites like com seek to provide a forum for publicising corruption in the delivery of different public services.
3. Supervisory levels in public agencies need to monitor service delivery systematically. Any deviation from the set norms should be analysed and, where there is evidence of wilful, mischievous intent on the part of the service delivery provider, she should be penalised.

^{[1] Klitgaard, Robert — International Cooperation Against Corruption (Finance & Development,  March 1998)}

I am unabashedly borrowing my title for this blog from the characterisation of the Indian state by Lant Pritchett, a former World Bank economist who currently teaches at Harvard University. When he used the term ‘flailing state’ at a lecture to IAS officers at the Indian Institute of Management, Ahmedabad, I must confess to a feeling of resentment in me and my colleagues about what we felt was a somewhat uncharitable comment. Six years down the line from that occurrence, I am strongly inclined, in the context of my experiences within and outside government, to endorse his view. In fact, I feel he has been rather charitable to public institutions in India, given the frustration and often anger one feels when observing their functioning today. Pritchett used the term “flailing” in the context of a situation where the head, that is, the elite institutions comprising the state, is not in control of the limbs, the field agencies, which operate without any accountability to the hierarchies above them. I would go further to say that elite institutions in India themselves do not function with any significant level of accountability. India is a nation where, as another researcher has put it, there is a yawning gap between laws, as they exist on the books, and laws, as they are actually implemented on the ground. It is here that I find the hypocrisy of the Indian elite especially galling: they take great pride in the theoretical superiority of their institutions, without pausing to introspect on the abysmal failures in implementation in area after area of governance.

Let me expand on this theme in an area I have been working in over the past twelve years or so. Undernutrition in children under five years of age is one of India’s biggest public health problems, contributing to unacceptably high infant and child mortality rates. In fact, India fares worse than nations in sub-Saharan Africa, as far as rates of stunted and underweight children are concerned. One of my colleagues, who has been working for over two decades on IT solutions for social sector issues, has developed a GIS-based software to monitor maternal and child malnutrition and mortality. The software uses mobile telephony to set up a two-way flow of information that updates the health and nutrition status of mothers and children on a real time basis while also providing alerts to frontline health workers on interventions to be made at appropriate times. Efforts are being made to introduce this software in different Indian states to enable tracking of individual mothers and children so that timely healthcare can be provided. What has been clear from the process of implementation over the past three years is that the initiative gets going in a state when there is enthusiasm and encouragement from the top of the civil service. There is also a heart-warming response from field level health workers, who have to actually deal with the problem and who welcome the introduction of information technology to help them perform their tasks far more effectively. The problem arises at two levels: the supervisory levels above the frontline health workers resent the imposition of accountability for their actions. At higher levels at the district and state levels, the availability of up to date data invites scrutiny from a host of actors: NGOs, the media and civil society. Once the initial supporters of the initiative at the highest rungs of the bureaucracy move out from their positions, the project suffers from an ‘apathy attack’. Successor bureaucrats in the concerned departments are either hostile to their predecessor’s efforts (the “successor-predecessor syndrome”) or fail to appreciate the logic and rationale for the launch of the initiative. In either case, the existing system ensures strangulation of the project by either choking off funds or making it clear to middle-level managers in the department that they are at liberty to pay no further attention to the project.

I wish I could say this malaise was restricted to a few departments. Unfortunately, this tendency operates right across the board in government. The UIDAI Aadhaar project to provide unique 12-digit identity numbers to every Indian citizen was beset with similar problems. First, other ministries, like the Ministry of Home Affairs, claimed ownership of this exercise and resented what they saw as the interference of another body in their legitimate function, never mind that the objective of the Aadhaar project was totally different from theirs. Thereafter, getting other Ministries at the national level to link their service functions with the UIDAI was another mammoth task, with not every Ministry too keen to use the Aadhaar number for their operations. Finally, there was (and still is) the issue of enlistment of state government agencies in linking their service functions with the Aadhaar number. At the national level, there was not even consensus on enacting legislation to give a formal legal backbone to the Aadhaar card. This led to the Supreme Court ruling that direct benefit transfers, like the subsidy on LPG through the linkage of the Aadhaar number to consumer bank accounts, could not be made mandatory, defeating one of the possible major benefits of the Aadhaar scheme.

There are three major reasons why reforms in India hit roadblocks ever so often, all linked to what I would term ‘myopic vision’ of the ruling elites. The first relates to the lack of any sort of political consensus on the direction reforms should take. Whether it is the auction of natural resources, the introduction of the goods and services tax (GST) or the issue of foreign direct investment in retail, we go around in circles rather than facing the challenge head on. One political group will stick to tired statements about the public sector having to retain the “commanding heights” of the economy, while another political formation will shed tears for India’s farmers and retail businessmen, without any detailed cost-benefit analysis of what a particular policy will entail. Ministers of Finance from the centre and states will meet year after year without resolving a taxation issue that Europe resolved in the nineteenth century. More and more, it is clear that political parties are held hostage by sectional vested interests, even though such relationships do not even appear to pay political dividends.

A second reason, and a major one, is the inbuilt resistance of the Indian bureaucratic class to change. Large sections of the bureaucracy have thrived on the status quo, with guaranteed lifelong returns from the government (in terms of salaries and pensions) and with no accountability for performance in their jobs. Recommendations of Pay Commissions on downsizing the bureaucracy have been blithely ignored: no prizes for guessing who did not let these suggestions see the light of day. A large part of the bureaucracy, especially (but not only) at the middle and lower levels does not have any commitment to change – the top level, after a few feeble attempts, goes back to ‘business as usual’. A massive report of the Second Commission on Administrative Reforms (the Veerappa Moily Commission) is gathering dust five years after final submission. Has any officers’ association (of any of the elite All-India and Central Services) attempted to advocate reforms based on the Committee’s recommendations or even sought to encourage public debate on the same?

The third reason lies in the inertia and intellectual confusion of the large group of academics, journalists and other eminences who jointly comprise the intelligentsia. Positions are taken on the basis of ideological leanings and a vague nostalgia for the past rather than on the merits of each issue. Concerns are brought up without analysing whether they apply to the Indian context. Two examples will suffice. I have seen a number of media articles some years back which questioned the use of electronic voting machines (EVMs) in elections in India. Examples were trotted out of some Western democracies where misuse of this technology had apparently been detected. No attempt was made by these ‘experts’ to actually see and describe the freedom that the Indian voter, especially the dispossessed and disadvantaged one, got from the exercise of his franchise through the dual combination of an election identity card and the EVM. Having personally overseen two elections in Bihar (the best test case for assessing the efficacy of this technology), I can testify to the change in atmosphere between the 1998 and 2005 elections and the newfound assertiveness of the voter. The same intelligentsia today raises questions about the Aadhaar card and the intrusion on the individual’s privacy. What price privacy, I would ask, when you are not able to get entitled benefits that the state has promised you, only because enabling technology to remove the pernicious influence of the ubiquitous middleman has not been introduced?

The essential problem lies in the Indian elite’s reluctance to experiment with innovation in different areas of governance. Whether it is policy reform, civil service recasting or technology use in governance, leadership, both in government and civil society, has been found wanting in giving a sense of purpose and direction : the same old debates and the same tired arguments seem to dominate all discussions. Any policy shift leads to some winners and some losers: what is required is reasoned debate on the benefits and costs of the proposed policy to arrive at a via media that is acceptable to most and looks at longer-term benefits to the country than a purely short-sighted approach that panders only to current (and sometimes unfounded) fears and insecurities. Someone desperately needs to cut the Gordian Knot. Can we hope that we have reached that stage at least in 2014?