 "Arvind Subramanian")
He said that this is creating a dilemma that whether the spectrum should be auctioned at fair market value, which does not factor in the social benefits of cheaper spectrum and there is a policy paralysis, where the banks cannot write down the loans based on their underlying value.
Delivering the fourth T Narasimhan Memorial Lecture on "Governance for Economic Development", organised by The Institute of Public Auditors of India (IPAI), he said: "Our referee institutions have become increasingly quite assertive and powerful, whether it is courts, or the CAG and CBI etc. Its not my business to say whether it is overreach or not, but I think one needs a balance in all these things and I am wondering whether we are able to strike that balance."
For instance, because of the previous issues government is obliged to auction spectrum at fair market value for spectrum, which is always contested. However, the policy dilemma as an economist is what if the social value of spectrum is much greater than the private value of the spectrum? If it is auctioned at a certain price, but that price might not fully incorporate what the benefits from having cheaper telecom rates or internet access rates.
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"If you auction it off, may be the prices that will have to be charged by the providers, - there are so many social benefits. The fact that all over India we have made cell phones and access cheap, I think the revolution that it has brought about in terms of connectivity, in terms of information, those are not internalised by markets. Here is a dilemma. Should we have this rule that they must be auctioned at fair market value?," he added.
Similarly, in the baking problem which is called as "the Mallya problem", the referee institutions has become very strong and while the assets are no longer valuer as once everyone thought it were, no banker would write down a single Rupee net present value of debt, because he will feel that the referee institutions will go after him. Therefore, there is a kind of paralysis in decision making that has been induced.
With the way things have evolved over the last 20-25 years, the referee institutions have acquired a certain legitimacy for some historical reason, and the question is have they acquired so much legitimacy that there must also be some possible down size to it. The Prevention of Corruption Act needs to be revised, because of the way it is worded.
Bad decisions can result in investigation, even if it may be made with a best of intention. It is inherent to decision making that there will be bad decisions, and there will be some bad investments because all these are about taking risks. But if all risk taking, all such exposed bad decisions are penalised, then there will be a situation where it affect what happens going forward.
"It is really wonderful that Vinod Rai just turned around the whole institution of the Audit Account Service and the Controller General's office, there is a sense in which we have to keep all these things in perspective," he said.
Any good system, require some balance between rules and discussion and he said that we are struggling to find that balance. The government is taking various steps to address this, including the Bankruptcy Law, addressing the problem of banking system and the problem of stalled projects etc, he told reporters later.
The policy reforms, in the last two years, the transparency policies, such as the e-procurement are good for governance. The decentralisation along with competitive federalism where the States has a healthy competition to perform better, would improve the governance in the country.
He added that while India is good at episodic accountability, that is the accountability during an emergency situation or a special occasion, but the ongoing accountability, which China has, is lacking. The bad governance and corruption makes its maximum impact on the poorest in the society, he said.
