India's Interventionist State: Bolster govt capability, reform management

In my first piece, I argued that reducing the scope of government is the first step to improving its effectiveness. In this companion article I elaborate on the second phase — improving state capability.

Building state capability is not an easy process, especially in a democratic setup. China carried out a major administrative reform in 1995 — some 15 years after the start of its economic reforms. In many East Asian countries, administrative reforms have been given as much attention as economic reforms. India did set up an administrative reforms commission in 2005 but did not follow through — and missed the bus, as preparations for the 2009 elections and dealing with the global financial crisis took precedence.  

While the scope of government is huge, the size of the civil service to ad­minister it is small and its composition needs a huge restructuring — too many clerical and administrative staff and too few technocratic experts, teach­ers, health workers and judges. The share of general government empl­oy­ment to total employment is around 1 per cent — the lowest in Asia. In most Asian countries, it’s above 2 per cent, and in Malaysia and Sri Lanka over 3 per cent.

India runs a boutique government — small relative to its needs but very expensive relative to its income. In India, the average wage of a general 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 (Vietnam, China) and 2.5 (Indonesia, Sri Lanka, Philippines). Even Korea, Thailand and Malaysia have a ratio of general government wage to per capita GDP of around 3-4. In much of the Arab world and Turkey, that ratio is around 2-3.

At the apex of the bureaucracy sits a mandarin-like elite administrative service mostly competent but who are shuffled around and, therefore, have no time to develop the in-depth expertise needed to remain abreast of global developments in those fields. They lack the technical edge required to lead India's government policy in their sectors to retain our competitive edge and they often suffer from excessive political interference in their functioning. A more professional, performance-based civil service with promotions based on regular testing rather than a time-bound lifelong sinecure is needed to main­tain a meritocratic culture. 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 East Asian countries such as Japan, Korea, Singapore and Taiwan.

India’s administrative pay structure also reduces capability and undermines effectiveness. The upper end of the civil service — which has discretionary decision-making powers — has seen its real wages fall well below that of the private sector, whereas at the lower end, that makes up more than 90 per cent of the labour force, salaries (including benefits) are more secure and higher than in the private sector. The ratio between the top and the bottom is now between 3 and 4, depending on how it’s measured but should be much higher.

A review is also needed of the roles and responsibilities of the central, state and local government — using basic principles of subsidiarity. Why does the government do some things well and others so badly? One way to think about it is that agencies with a few specific tasks — central banking (Reserve bank of India) space (Indian Space Research Organisation), elections (Election Commission) — that are given considerable discretion in their decision making can be run more effectively. On the other hand, basic education or primary health care are high-volume transactions with little specificity. Central­ised systems — with prescribed procedures — deliver these badly. Provid­ing these at local government and through civil society will be cheaper and with better outcomes.

The proliferation of national flagship schemes has blurred the role and responsibilities of the Centre and the states and diminished accountability. The 14th Finance Commission shifted a larger share of resources to the state level and the 15th Commission has kept those shares — but much remains to be done to shift more resources to the local level. Creeping recentralisation through cesses by which the divisible pool is reduced must be resolved.

Most Indian states are the size of countries — Uttar Pradesh’s population makes it the world’s fifth largest and there are 10 states with populations above 50 million. Just shifting funds to the state level does not necessarily meet the subsidiarity principle if city and town mayors are not empowered and panchayats have no means to raise resources. India’s share of local government spend and hiring is much lower than China. Local property taxation to fund these services will also provide greater ownership and control over the provision of these services and more empowered managers. A rise in property taxes — which remain amongst the lowest in the world — is the most obvious way to provide more resources at the local level without eating into state and central government revenues and help build “smart” cities has not been utilised, so far.

India also needs serious judicial ref­orm to ease the backlog of cases, and more consistency and predictability in judgements both in the judiciary and in administration. The judiciary remains small and arcane in its procedures — and judicial activism has amplified but is very selective and one might even say capricious, often at the cost of further delays in the cases piled up at the doors of the courts. Digitisation of the court system and records, hiring more judges and modernising the system by increasing systems of arbitration and commercial courts will also help reduce delays. As the saying goes, “Justice delayed is justice denied”, and India is denying justice on a gigantic scale — and there­by increasing corruption in the judicial system.

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.”

The writer is Former Director-General, Independent Evaluation Office , GOI and Distinguished Visiting Scholar, George Washington University

For further reading: https://cpb-us-e1.wpmucdn.com/blogs.gwu.edu/dist/5/1304/files/2021/02/Combined-Paper-on-Interventionist-State-Feb-4-1.pdf