Government needs to cut its size for India to progress: Aroon Purie
The state in India has become its own worst enemy. That's the fundamental issue I would like to talk about today.
While the Indian citizen has evolved, becoming more demanding for better social services and a better standard of living, the Indian state, by which I mean the government, has witnessed two contradicting trends - it has become bigger, in fact, too bloated in my view, but the standard of services offered by it has deteriorated dramatically.
I believe the government has become a major hindrance to the growth of this country.
The much touted reforms of 1991 of PV Narasimha Rao were much needed but they were like taking off the chains of a prisoner but not letting him out of the prison. Liberalisation was hailed as revolutionary but I believe it was just tinkering. He did not take on the bureaucracy in terms of cutting down its size.
The country needed surgery and he gave it homeopathy.
And that too he made no song and dance about it. It was reform by stealth. Maybe that's the only way to do reform in India.
Besides, liberalisation did not change the colonial mindset of the bureaucracy, which was to control the country and be served rather than be of service.
No leader yet has taken up the challenge to fundamentally reform the bureaucracy.
I believe this has not happened because of the unholy nexus between politicians and bureaucrats where neither of them wants to lose the power of patronage.
Let me be more specific with some of the problems.
Problem #1
As I said before, the state is too big.
Before he himself joined the government, economist Bibek Debroy did an analysis for India Today in 2013 on useless ministries. He suggested that 31 ministries out of 55 ministries at the time, ranging from animal husbandry to tourism, be scrapped.
And the remaining be restructured into 12 major ministries of commerce, trade and industry, consumer affairs, infrastructure, defence, law and corporate affairs, external affairs, home, finance, social sectors, energy and natural resources and science and technology. He calculated that this would affect an overall saving of Rs 1,50,000 crore.
Many ministries oversee entities which are supposed to be autonomous. Like I&B oversees Doordarshan and AIR, steel, mines & power monitors SAIL, Coal India and a host of other PSUs.
The classic example is Civil Aviation. What is its job when there are four regulators - AERA (to regulate tariffs), AAI (for airports), DGCA (for airlines) and BCAS (ground handling). In the US, there is no aviation ministry and no regulators. All aviation aspects are handled by FAA (Federal Aviation Administration).
Compare the size of the two markets.
India has around 450 airstrips and airports, of which only 75 have scheduled operations. In comparison, the US has 19,299 airports and airstrips. In the US, the monthly passenger traffic for scheduled airlines is 7.44 crore.
In comparison, just 83.81 lakh passengers fly in India every month. There are some 96 regional and national carriers in US compared to a total of 11 airlines in India.
The number of planes flown in India by scheduled airlines is 468. The fleet size of US commercial airlines, including regional carriers, stood at 6,871 in 2015.
I have given all these details to highlight how superfluous our Civil Aviation Ministry is.
The crux of the matter is that departments and ministries are created not on economic or administrative logic but political accommodation. Such is the multiplicity that if one wants to improve sports facilities for women in rural areas it is not one but seven ministries (Rural Development, Social Justice, Sports, Youth Affairs, Finance, Women and Child Welfare and Panchayati Raj) that will be involved.
"India@70 - Democracy, Development & Dissent" happy to hv Sh.@aroonpurie, Chairman & Editor-in-Chief, India Today, as distinguished Speaker pic.twitter.com/su69OzFh7q
— India Ideas Conclave (@IICGoa2016) October 29, 2016
How on earth can you expect anything to be done with such a complex structure?
It makes my blood boil when I read about the fact that our soldiers fighting on the front don't have the basics of proper boots, helmets, night vision goggles and even ammunition. All this is stuck in our byzantine bureaucracy. Some babu is sitting on a file while our brave jawans risk their lives.
Instead of cutting ministries under one minister, there is a new trend of combining incongruous ministries, making for strange bedfellows. What has Chemical and Fertilisers got to do with Parliamentary Affairs or Urban Development, Housing and Urban Poverty Alleviation with Information and Broadcasting?
The number of departments in the Government of India was 18 in 1947. And the number of secretaries to the Government of India was 19 and that of IAS officers 143.
Today there are 134 IAS officers just at secretary level postings, while the number of IAS officers posted in the Central Government is 820 - though the total number of IAS officers is 4,800.
In 1947, Jawaharlal Nehru's Cabinet had 17 ministers. By 2016, the Council of Ministers had 75 ministers - 26 cabinet, 13 ministers of state (MoS) with independent charge, and 36 MoSs.
Two Administrative Reforms Commissions, in 1966 and 2009, advocated small governments. No decision has been taken as yet.
The Second Administrative Reform Commission, in fact, recommended an integrated approach of combining ministries. Ministry of transport put together civil aviation, surface transport, railways and shipping. Today there are three ministers for this.
Similarly for energy. Energy is now being handled by at least four different departments - the ministry of power and coal, nonconventional energy sources, petroleum and atomic energy. In contrast, in the UK, there is a single secretary of state (cabinet minister) for transport and a single secretary of state for energy.
All this makes eminent sense but the unholy alliance I mentioned earlier just won't let it happen. It requires bold selfless leadership to do this, which is simply not forthcoming.
Not just that. Liberalisation has created its own bureaucracy, a permanent establishment, which forever remains in power. In 2012, of the 11 new regulators set up for new areas such as telecom and electricity regulations, nine were retired bureaucrats, creating an establishment that is inherently geared to preserve the status quo.
Even the new rights created their own bureaucratic infrastructure. In 20 states, for instance, the chief information commissioner under the Right to Information Act is the state's former chief secretary.
The point is that as we have progressed from a Nehruvian model of state controlled economy to a more market friendly one, the bureaucracy should have shrunk or at least not grown to this enormous size.
One radical solution borrowed from Nandan Nilekani would be to introduce ten start-ups or missions into the system, of ten people each, to handle ten challenges identified by the prime minister, ranging from education to poverty.
This would achieve two things: allow bureaucrats to develop much needed specialisations. And ensure that professionals come in and work with governments, much as Vikram Sarabhai started ISRO or Homi Bhabha started TIFR all those years ago.
This is apart from a restructuring of ministries, greater use of technology and greater share of private sector in delivering public service which would put us in the right direction
But in today's context, I don't see that happening.
Problem #2
The state has no business being in business is a slogan ringing in my ears since the 2014 general election. Let us see what happened on this front.
Recently, Niti Aayog gave a list of 74 loss making PSUs to the PMO. These should be shut down forthwith instead of some attempts to revive some of them. So far the government has decided to shut down ten PSUs. This is a good beginning but what about the other 64?
Good money is being spent on bad - Rs 53,772 crore were provided to the 74 units between 2004 and 2016 and these sick central public sector enterprises owe Rs 33,960 crore to the Centre.
According to an audit report of the Comptroller and Auditor General of India, 157 central PSUs have accumulated losses worth Rs 1.1 lakh crore ($16.5 billion) as of 2014-15, which is larger than Zimbabwe's GDP in 2014, and bigger than the economies of at least 65 countries.
The latest survey (2014/15) says we have 298 Central PSUs. The total investment made by the government in them till March 31, 2015, was over Rs 10 lakh crore, approximately the amount that is needed to develop India's 7,500km long coastline through its ambitious Sagarmala infrastructure development project. The plan investment for Central PSUs for 2014/15 alone was Rs 2 lakh crore.
Then there are public sector banks, the result of a cynical and politically motivated nationalisation by Indira Gandhi in 1971, which has left us a legacy of bad debts.
Twenty-nine state-owned banks wrote off a total of Rs 1.14 lakh crore of unrecoverable loans between financial years 2013 and 2015, much more than they had done in the preceding nine years.
The total pile-up of bad loans of India's public sector banks now amounts to Rs 13 lakh crore.
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| Finance minister Arun Jaitley. (Photo credit: PTI) |
So why does the government continue to have a presence in areas where it clearly has no domain expertise? It's a tribute to the patience and forbearance of the Indian taxpayers that they suffer this kind of foolishness.
No government has shown the stomach for disinvestment in PSUs.
The only government that tried to do anything about loss making PSUs was the coalition government of Atal Bihari Vajpayee which sold 28 loss making units to private players.
It saw Bharat Aluminium Company becoming part of Anil Agarwal's Vedanta Group, Tata Sons acquire majority stake in CMC Ltd, Indian Petrochemical Corporation getting merged with Reliance Industries, and Maruti Udyog Ltd turning into a subsidiary of Japanese Suzuki. By all accounts these companies are prospering.
Sadly instead of adhering to his campaign promise of getting out of business, Prime Minister Modi's government has been continuing the tradition of expanding the state.
The Modi government recently asked cash-rich public sector firms ONGC, NTPC and Coal India to adopt one closed urea plant each for revival, which would cost them about Rs 18,000 crore over the next four years.
The government has already announced its plan to set up four steel plants in Chhattisgarh, Jharkhand, Odisha and Karnataka, the first state-owned greenfield projects that will come up in this sector in almost four decades.
This does not look like the government doesn't want to be in business. It seems it wants to be in more businesses.
Frankly, I believed Candidate Modi when he raised that slogan. And when he was elected I said to myself finally we are going to get radical change.
Now, I will only believe they are serious about it when they sell Ashoka Hotel and Air India. Regardless of value, these will be signature acts.
Problem #3
The state delivery mechanism is flawed.
In 1985, Rajiv Gandhi had famously said that for every rupee sent to the common man, only 17 paise reaches him. In 2009, then Deputy Chairman of the Planning Commission Montek Singh Ahluwalia echoed him, saying the leakage was up to 16 paise. In spite of knowing this we continue to proliferate government schemes where there is no match between outlays and outcomes.
There are many reasons for this. One, there is a multiplicity of Centrally Sponsored Schemes, which have to travel through all the states and villages of India after starting in the capital, Delhi, as a one-size-fits-all model.
Two, the Union Government is the planner, financier as well as monitor, not the best case scenario for accountability.
Three, these schemes end up making programme managers of bureaucrats who are unsuitable for the task. Also, this naturally leads to erosion of state autonomy. There is a need to move from a centralised to decentralised structure and localisation of implementation.
Four, at all levels, there is an incentive not to take any decision. Section 13 of the Prevention of Corruption Act defines what constitutes criminal misconduct by a public servant and specifies penal provisions, which includes jail up to seven years.
Despite several attempts, the bureaucracy has not been able to get this amended to grant itself immunity from political vendetta.
Five, there is no encouragement for innovative thinking. For instance, to sell surplus army land--move cantonments out which traditionally were located on the outskirts but now, with growth, are located right in the heart of many cities occupying valuable land. The British located these cantonments to control the natives. The British have gone but the cantonments remain.
In just three years, 1,073 acres of defence land - equal to 412 football fields - has been swallowed up through encroachments by builders and private developers.
Similarly, surplus railway land value can be unlocked as well. One lakh acres of vacant land - nearly the size of Puducherry - is at the disposal of Railways and is worth an estimated Rs 22 lakh crore.
Surely we can think of some innovative way to monetise these dead assets for public good.
Problem #4
This is a more philosophical point. Make the bureaucrat invested in the system.
The middle class has seceded from the state. Those who can afford it don't use state services. Education, health, access to water, transport and security are so abysmal, India's middle class and elite class rarely, if ever, use them.
Until bureaucrats start sending their children to government schools, or start going to public hospitals (apart from AIIMS), they will not want to improve the quality. It's a vicious circle.
Ladies and gentlemen, I am sorry to have depressed you. As Ruchir Sharma says, India disappoints both optimists and pessimists. But hope is eternal. The Modi government has shown some mettle in repealing over thousand outdated laws, in identifying ten loss making PSUs for stake sale, and in improving conduct rules, ending the transfer posting raj, and changing the appraisal system.
Now it has to show that it is capable of reforming itself and not only in what Chief Economic Adviser Arvind Subramanian calls "persistent, encompassing and incremental reforms "- A phrase, that to me, embodies the real problem.
We have to stop being a nation of tinkerers. We need audacity in our public policy. The country is bursting with youthful entrepreneurial energy and innovative ideas.
The government needs to get out of the way to let them flourish.
Lastly, at the risk of not being served dinner tonight, I must say that my deepest disappointment in Indian politics is that the BJP has not occupied the space of a genuine Right-wing, market-friendly party.
Instead it seems to have remained a party espousing cottage industry capitalism and embroiling itself in peripheral issues, in a manner not befitting its massive mandate.
But then as I said hope springs eternal. Maybe the India Foundation can persuade them to fill the vacuum.
(The speech was made at India Ideas Conclave 2016, Goa.)