<b>A K Bhattacharya:</b> Internal dissent, external crises

The government lacks an institutional mechanism to absorb and cope with dissenting voices on issues before they become full-blown problems

How effectively can a senior official belonging to the Indian Administrative Service (IAS) shape or influence the course of key policies on economic reforms? An indication of this will be available from the manner in which the ongoing Centre-state negotiations on the introduction of the Goods And Services Tax (GST) have gone on in recent months.

One of the most vocal opponents of the GST regime is Madhya Pradesh. And if those associated with the negotiations are to be believed, it is not just the political agenda of a state ruled by the Bharatiya Janata Party that’s behind Madhya Pradesh’s stern opposition to GST, the bigger hurdles to the launch of the proposed indirect taxes regime seem to be the powerful arguments and presentations made by a senior IAS officer in the tax department of the state government.

A few of the negotiators are of the view that it would be possible to overcome the Madhya Pradesh finance minister’s opposition to GST, but that would not be enough until the senior IAS officer’s arguments against the new system are effectively countered, or he is transferred to the Centre. That says a lot about the power of an IAS officer, though this is nothing new for those who have an idea of how governance takes place in most states in the country.

What appear to be new, however, are the increasing number of such incidents and the inability of the institutional system to counter an individual’s influence that can potentially threaten to derail policy-making. Individuals are a critical component of any system, but for a well-functioning and effective system, it is important that individuals function in a manner that does not undermine the authority of the system. It is a delicate balance that governments in the past have maintained both at the Centre and in the states, but it seems not enough attention is being paid to this aspect of governance of late.

Until he retired as the secretary in the department of financial services in the finance ministry last month, D K Mittal made his presence felt among public sector players in the banking and insurance sectors. Public sector bank managements would be wary of challenging him, even though they saw some of those directives coming in the way of their day-to-day business. In the insurance sector, the differences of opinion surfaced between Mittal and the insurance sector regulator chief, J Hari Narayan, on what should be the investment cap on the insurance companies’ exposure to equity.

The law was pretty clear. The state-owned Life Insurance Corporation (LIC) was entitled to keep its equity investment cap at 30 per cent, but the cap for private players was lower at 10 per cent. The insurance regulator wanted to raise the cap for all insurance players to 15 per cent, which effectively would have reduced the investment cap for LIC, the largest insurance player in the market. Mittal, clearly under advice from above, would not agree to such divestment of LIC’s power to invest in equity up to 30 per cent. Now, the insurance sector regulator was asserting its right to ensure a level-playing field for all the companies and the finance ministry through Mittal flexing its muscle to protect the interests of LIC, an entity in which the government had a majority equity stake. It is still not clear what shape this tussle will take in the coming weeks.

Yet another instance of such public airing of differences was the finance ministry’s assertion through a statement that the advance estimates of India’s gross domestic product for 2012-13, pegged at five per cent by the Central Statistics Office (CSO), were actually an underestimation, and the final growth figure for the year would be close to 5.5 per cent. Not only that, the ministry’s chief economic adviser chose a public meeting to express similar doubts about the correctness of the estimates and the deputy chairman of the Planning Commission, Montek Singh Ahluwalia, also did something similar. In response, the government’s chief statistician, T C A Anant, offered an unconvincing explanation that only added to the confusion and embarrassment over what India’s growth numbers actually should be.

Note the common elements in all the three recent instances of senior government representatives making public their differences over policy matters or economic growth estimates. In all of them, the differences could have been easily managed and sorted out with relative ease. In most cases, they belonged to the same department or the ministry, and what became a public debate could have been discussed across the table and a solution could have been found out for policy action to move without any hurdle.

What is problematic here is not airing of differences but the government’s inability to manage those differences in advance. It is the failure of the government system that there is no internal mechanism by which the Madhya Pradesh government official opposing the GST regime could be convinced well in time, or the insurance sector regulator made to see eye to eye on the question of what LIC’s investment cap ought to be, or why CSO’s estimates of growth were allowed to spring a surprise on the finance ministry.