Getting India back on track Progress requires a deep commitment to restoring the centrality of markets

in economic decision-making E-mailPrint Ashley J. Tellis

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The 2014 national elections will be a critical waypoint along the road to restoring Indias economic
growth. One survey after another has suggested a deep yearning for change. The electoratein both
the cities and villagesseems seized by the need to return the country to high growth. The
transformations that began with the economic reforms unleashed in the 1990s have given Indians a
taste of what structural change can bring to their lives. The explosion of resentment against corruption
only testifies to the popular desire for better distribution of the nations economic gains. Such an effort
will be doomed without continuing growth. Whatever the causes of Indias economic slowdown may
have been, there is a widespread conviction that the leadership failed to steer the country in a
productive direction. That leads inexorably to the question of what must be done to recover momentum
when the new government takes office. This article is the first in a 10-part series, drawn from a new
book prepared by the Carnegie Endowment for International Peace, which tries to answer that question.
Each article will examine an aspect of the Indian economy, or of the countrys social and political system,
that is of central importance to the acceleration of growth, offering policy suggestions for the next
government to consider for achieving change in the short term. The common themes include the
importance of strengthening key state institutions, the priority of getting the details right for the success
of long-term transformation, and the need for action at the state level, given the steady shift in power
away from the central government. Above all, the series will look forward to necessary tasks that are yet
to be completed. That very fact serves as a reminder of how much Indias future reforms stem from the
countrys grandbut in at least one respect problematicinheritance. This introductory essay reviews
that inheritance, highlighting the entrenched challenges that the new government will face. When India
was born in 1947, many sceptics doubted that such a countrymarked by crushing poverty, bewildering
diversities and weak institutionscould long endure. India has proved the pessimists wrong: not only
has it preserved its national unity, territorial integrity and political autonomy, but it has done so through
an unprecedented experiment centred on building a just society by just means, as Jawaharlal Nehru,
its first prime minister, told Andr Malraux. This monumental project was erected on a distinctive triadic
foundation of liberal democracy, civic nationalism and socialist economics. The three components were
intended to be mutually reinforcing. Together they were meant to fulfil Indias dream of becoming a
great power. Success would hinge fundamentally on the ability to produce rapid growth and meaningful
development, which would eliminate mass poverty while bringing justice and dignity to Indias socially

disenfranchised. But only two of the three foundations proved productive for this purpose. Liberal
Democracy, holding the country together Liberal democracy clearly turned out to be the singular glue
that protected Indias unity and territorial integrity. Indias stunning diversity would have pulled the
country apart had it not been for the fact that India consciously gave itself a constitutional order that
enshrined the twin components of all real democracies: contestation, or the peaceful struggle for power
through an orderly process, and participation, or the right of all citizens, irrespective of wealth, gender,
religion, or ethnicity, to vote. But India went much further. The bedrock of the constitution, centred on
inculcating a comprehensive respect for persons, is what makes the Indian political system not simply
democratic but also irreducibly liberal, insofar as it holds that the ultimate purpose of governance must
be to protect, if not enlarge, the dignity of the individual. Given Indias diversities and its social
disfigurements, such a vision led ineluctably to conscious efforts at advancing a conception of secularism
grounded on religious tolerance, protecting minority rights, and implementing different forms of
affirmative action. Civic nationalisms vital success The formal processes enabling representative rule
were boosted further by Indias civic nationalism. Until the arrival of the Raj, it was questionable
whether the term Indian could be used to define the people residing within the subcontinent. Despite
the broad cultural unity of the region, its inhabitants invariably defined themselves by their ethnicity,
religion, or political membership (as subjects of the local kingdoms in which they lived). Often they
identified themselves by all three. Indias success in building a modern state derived from its thorough
insistence on institutionalizing what was Mahatma Gandhis greatest bequest to the freedom
movement: the construction of a new Indian nation, not by suppressing its many particularities but by
incorporating them into a composite identity that preserved in marble-cake fashion all its constituent
diversities. The modern Indian polity, therefore, emerged not as a nation-state but rather as a nationsstate. Indias post-independence leadership eschewed parochial nationalism in favour of civic
nationalism, where the rights and privileges of being Indian were conceived as arising not from some
pre-existent modes of belongingreligion, race, or ethnicitybut instead from participation in a
collective political endeavour. Yet the success of Indian nationalism was not intended to be measured by
the brute criterion of physical persistence alone. Whether this endurance contributed toward realizing
justice and fullness of life to every man and woman was equally at issue. And this ambition, in turn,
shaped Nehrus conviction that Indias conquest of material poverty would not be achieved through any
means other than the third leg of the foundational tripod, socialist economics. Socialist economics, the
experiment that failed Socialism was beguilingly attractive at the time of Indias independence. The
Great Depression had underscored the failures of market capitalism and the Soviet Unions successes
seemed to prove the superiority of centralized planning. Socialisms appeal for Nehru, however, derived
from more than purely instrumental calculations. A Fabian socialist from his early years, he was deeply
suspicious of the profit motive and saw an intrinsic connection between capitalism and inequality. If the
material foundations of the new Indian nation were to be rapidly rebuilt in the aftermath of
independence, a socialist reorganization of the economy was thus inevitable with Nehru at the helm.
Given his strong democratic temper, however, Indian socialism involved neither a violent decapitation of

the capitalist classes nor a systematic nationalization of existing capital stocks. In fact, it permitted the
existence of a private sector, but one that would enjoy only restricted opportunities. And, in light of the
countrys desire to become a great power, Nehrus socialism took the form of a state-dominated mixed
economy oriented towards the acquisition of a heavy industrial base. At its core lay a systematic effort
at centralized planning, with vast public-sector enterprises populating the economys commanding
heights. The endeavour unfortunately resulted in the suppression of domestic competition with all its
pernicious consequences: scarcity, compromised product quality and higher prices. Moreover, Indias
connectivity with international trade was curtailed. Finally, a high tax regime stifled whatever private
initiative was left. The policies were accompanied by the growth of a vast bureaucracy that quickly
became corrupt and stultifying. Over time, the commitment to socialism mutated from idealism into a
sclerotic instrument of power and patronage. By 1980, the sorry results of the socialist experiment were
visible for all to see. The 3% or so Hindu rate of growth chalked up between 1950 and 1980 could not
transform the lives of Indias people. When measured against the economic accomplishments in the rest
of the world, Indias failures were stark. But the damage was worse yet: the experiment had also
undermined the other foundational pillars, liberal democracy and civic nationalism. Going forward The
ravages of the socialist past are by now widely acknowledged, and, of course, a slow rollback of socialist
policies has been underway since 1991. But the shift has been hesitant, conflicted and furtive rather
than forthright and resolute. Going forward successfully will require diverse reforming actions, but
above all a deep commitment to restoring the centrality of markets in economic decision-making and
defending them doggedly in the face of the myriad temptations to distort them. Reform, in fact, requires
momentum along three avenues simultaneously: reducing the role of the state in areas where it lacks
advantage, such as the production of private goods; increasing the states effectiveness through better
administrative, regulatory, and adjudicative public institutions as well as more competent creation of
tangible and intangible public goods; and improving the states capacity for rational public policies by,
among other things, subjecting them to market tests. The reform efforts unleashed immediately after
1991 represented only the initial steps in undoing socialisms pernicious legacy. The early successes of
this effort became visible during the first decade of this century, when India chalked up unprecedented
rates of growth. But then came the last five years, which proved so cruel. The global financial crisis
undoubtedly played a role in the countrys depressed performance. But the plain truth is that India
faltered because its political leadership failed just when it was most needed. The disastrous bifurcation
of power witnessed in New Delhi since 2008 created exactly the conditions that undermined the
momentum for further reform. Bringing India back to high growth will be a complex task that requires
what Karl Popper once called piecemeal social engineering. The next wave of reforms pertains to
liberalizing factor markets, building on the previous wave that focused on product markets. This will
involve intricate technical issues, with the locus of action often shifting to the states. The beneficial
effects will be realized only through aggregation and careful execution. Progress will require the kind of
painstaking translation that transforms lofty concepts into sensible policies, the only thing that finally
matters. This task is now at hand. Neither India nor the world can afford to watch fortune elude New

Delhi for another five years. This is adapted from a chapter in the upcoming book Getting India Back on
Track edited by Bibek Debroy, Ashley J. Tellis and Reece Trevor. It will be published in June by the
Carnegie Endowment for International Peace and Random House India. Ashley J. Tellis is a senior
associate at the Carnegie Endowment for International Peace specializing in international security,
defense, and Asian strategic issues.

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First Published: Tue, Jun 03 2014. 05 51 PM IST Home Opinion Bibek Debroy | Correcting the
administrative deficit India doesnt need new commissions or committees. Any policy is only as good
as its implementation.

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The Indian economy is in bad shape. Gross domestic product (GDP), unemployment, savings and
investment, wholesale and retail inflation, the exchange rateall economic indicatorsshow signs of
the malaise. A variety of factors is blamed for the situation. A cause that is frequently overlooked,
however, is the administrative deficit in the central government. There has been a collapse of both
bureaucratic and ministerial decision-making and implementation in the executive branch. This problem
is not new, but it has worsened under the United Progressive Alliance II (UPA-II). The new government
can address the collapseand thereby help revive the economyby focusing on four areas: anticorruption laws, civil service reforms, central-state relations, and ministry reforms. Anti-corruption laws
Indias anti-corruption efforts, however necessary and well-intentioned, have produced a chilling effect
on public administration. Most notable is the Prevention of Corruption Act enacted in 1988. It applies to
public servants and defines criminal misconduct. But some of the laws language discourages action. For
example, it defines as a criminal offence when any individual, ...while holding office as a public servant,
obtains for any person any valuable thing or pecuniary advantage without any public interest.
Bureaucrats, who are public servants, tend to make decisions that benefit third parties. In addition,
public interest is a vague term. Such language is enough to make a public servant hesitant to act.
Making the situation worse is that the number of complaints received by the Central Vigilance
Commission has risen significantly, tripling from 10,142 in 2008 to 37,039 in 2012. The increase reflects
the pressure being exerted on corruption and has been reinforced by instances of whistle-blowing.
Ensuring the culpability of dishonest civil servants is critical, but it is equally important to protect honest
ones. Challenges exist on both fronts, however. For example, Article 311 of the Indian Constitution
makes it very difficult to take action against a civil servant. In addition, before a court can take
cognizance of an offence under the Prevention of Corruption Act, Section 19 requires the sanction of the
competent authority. Then there are delays granting sanctions, and technical problems with the process
are used to argue for acquittal. Finally, trials take a long time, and conviction rates are low. Protecting
honest civil servants also has its hurdles. Some sections of the Prevention of Corruption Act shift the
burden of proof to the accused, and there are several dimensions to corruption. In many cases of
relatively petty corruption, the answer lies in eliminating monopoly and discretion and increasing

transparency and accountability. However, discretion cannot be eliminated at the higher levels (joint
secretary and above) of the central government. There is also a lack of clarity on the protection granted
to retired civil servants. The necessary reforms have been documented in more than one report by the
Second Administrative Reforms Commission and should have been implemented by the executive
branch. Since they were not, a writ petition was filed with the Supreme Court, which delivered a
judgment on 31 October 2013. Among other things, this judgment directs the government to set up a
central civil services authority, enact a Civil Services Act, and have a fixed minimum tenure. In addition,
civil servants are not to act on the basis of verbal directions and instructions, are not to have any
dealings with a person claiming to act on behalf of a business or an industrial house or individual unless
the representative is properly accredited and approved by the department concerned, and must keep a
record of all interviews granted to accredited representatives. It is possible to complain of judicial
overreach and that some of these recommendations constrain efficient decision-making. However, the
Supreme Court would not have got involved had the government implemented the recommendations of
the Commission. The agenda for the new government is straightforward: set up a central civil services
authority, enact a new Civil Services Act, revamp the laws on corruption, and change the Conduct Rules.
The new administration should also swiftly enact the pending amendment to the Prevention of
Corruption Act. Civil service reforms Reforms that enhance quality and productivity in the civil service
are necessary to improve decision-making and implementation. In September 2013, UPA-II announced
the establishment of the Seventh Central Pay Commission to examine the compensation of central
government employees. In the past, the actions of these Commissions have often led to a substantial
increase in salaries. Logically, this ought to happen if there has been a commensurate increase in
productivity. Arguments are sometimes advanced about low government salaries and the need to raise
wages to attract and retain talent. But if one accounts for perks and allows for a job security premium,
that proposition is no longer valid. Therefore, the new governments plan for this Commission should be
to reform the civil service by using performance appraisals to incentivize employees. Central-state
relations A failure to clarify the states role in policymaking has exacerbated the administrative deficit.
Whether the issues involve a central counter-terrorist centre, a goods and services tax, or agreements
with Bangladesh, the decisions have been held up by confusing the jurisdictions and priorities of the
central and state governments. The new government can begin rectifying the situation by focusing on
fiscal transfers. Article 280 of the Constitution provides only one mechanismthe Finance
Commissionfor transferring tax revenue from the central government to the states. There is no
provision for plan transfers that are executed by the Planning Commission according to development
plans rooted in the Five-Year Plan and discretionary transfers. Therefore, the Plan versus non-Plan
distinction should be abolished, transfers through the Planning Commission drastically reduced, and
non-discretionary transfers made through the Finance Commission. In addition, the new government
should revise the system for discretionary transfers by the Planning Commission through Centrally
Sponsored Schemes (CSSs)schemes that are largely funded by the central government but carried out
by state governments and requiring matching contributions from non-special category states. The

Planning Commissions view on CSSs, at least in the course of the 10th Five-Year Plan, was the following:
It would be better to dofewer things well rather than messing up with a larger number of
activitiesOne of the ways to reduce the mismatch between the lofty intentions of the (government of
India) and its poor implementation capability is by re-examining...Centrally Sponsored Schemes, and by
radically limiting its number and improving its flexibility. The share of the CSSs in the Plan budget of the
central ministries has now increased to 70% against 30% in the early 1980s. This massive increase has
however not been matched by improved monitoring, and effective control over diversion of plan funds
for salaries and other non-plan expenditure. Therefore the number needs to be curtailed drastically
from more than 200 today to just about 20 to 40... There are other problems with CSSs as well: they
encroach on states authority; they increase states financial burden; they impose conditions in areas
that are the legislative domain of the states; and they transfer funds to autonomous bodies, bypassing
the states. The CSSs should be pruned, and more untied funds should be available to the states. Funds
need not be completely untied; there can be overall guidelines and some indication of the sector for
which the funds can be used. However, states need to have far greater flexibility. It makes sense to
retain only those CSSs that are in some sense demand-driven. For example: Swajaldhara (for drinking
water), the Mahatma Gandhi National Rural Employment Guarantee Act, the Total Sanitation Campaign,
National Horticulture Mission, National Rural Health Mission, National Urban Health Mission,
Sampoorna Grameen Rozgar Yojana (for food and employment), and Integrated Child Development
Services. But even in such cases, the centralized template should be tweaked and weakened, so that
states have greater flexibility. Ministry reforms The Constitution Amendment Act of 2003 specifies that
the number of ministers in the Central Council should not exceed 15% of the total number of members
in the Lok Sabha. UPA-II had 51 ministries and 79 ministersnearly the maximum allowed by law. The
administrative deficit can be traced in part to the existence of so many ministries. For example, roughly
counting, an average infrastructure project requires 56 authorizations and clearances from 19 ministries.
The disproportionate influence of these ministries also has had an effect. Constitutionally, issues are
meant to be resolved through collective decision-making by the Cabinet. Under UPA, howeverand
more so under UPA-IIthis system was shortcircuited by a large number of Groups of Ministers and
Empowered Groups of Ministers. There are no reliable figures on how many of these groups exist. But
according to journalists reports, 183 such groups have been set up since 2004. Clearly, to rectify the
administrative deficit as well as protect constitutional sanctity, there is a case for re-examining the
number of ministries and ministers at the central level. And it is not hard to imagine fewer. If, as stated
earlier, there is clarity of central and state jurisdictions, a single ministry for social sectors could suffice.
And India does not require so many ministries for energy or for transport. Conclusion The administrative
deficit may not be talked about as much as the fiscal deficit. But if it is not corrected, growth will not
pick up. India doesnt need new commissions or committees to determine what needs to be done.
Recommendations already exist; they merely need to be implemented. Administrations often tend to
focus on policybut any policy is only as good as its implementation. Bibek Debroy is a professor at
the Centre for Policy Research, New Delhi. This is adapted from a chapter in the upcoming book Getting

India Back on Track edited by Bibek Debroy, Ashley J. Tellis and Reece Trevor. It will be published in June
by the Carnegie Endowment for International Peace and Random House India. Comments are welcome
at theirview@livemint.com

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Getting India Back on Track, by Bibek Debroy, Ashley Tellis and Reece Trevor

Review by James Crabtree

After Modis lacklustre start, some academics propose bold reforms to rebuild the economy

After the hype, now comes reality. Indias Narendra Modi won a thunderous electoral victory in May. His
supporters predicted rapid change as the prime minister began unshackling an economy hobbled by
graft and political drift. Comparisons with Margaret Thatcher of the UK and former US president Ronald
Reagan were bandied about.

If his early months are an indication, such allusions already seem fanciful. Mr Modis debut budget was
cautious, verging on the underwhelming. He has demurred on potentially radical reforms, from bank
privatisation to corporate tax reform. Last week, he single-handedly blocked a crucial global trade deal.

Deeper confusions remain about his economic beliefs as well, which often appear to rest on little more
than slight electoral slogans, such as minimum government, maximum governance.
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Those hoping for market-oriented reforms will take solace, therefore, from Mr Modis appearance at the
New Delhi launch event for Getting India Back on Track, a collection of essays from prominent Indian
academics, compiled by the Carnegie Endowment for International Peace, a US-based think-tank.

The book bristles with examples of problems faced by the new prime minister. Each year 35m tonnes of
food, meant for the hungry, are either stolen or left to rot. Disputes over land mean $100bn worth of
investment projects lie unfinished or are not started at all. Small industrial businesses are ensnared in
more than 1,200 separate sets of regulation.

Co-author Ashley Tellis, a one-time policy adviser at Americas embassy in New Delhi, argues that only a
new wave of economic liberalisation can overcome such issues, while also taking on the countrys
dominant culture of soggy, leftwing ideas. Socialism has corrupted the deep structure of state-society
relations in India, he writes. A slow rollback of socialist policies has been under way since 1991. But
unlike the case in China since 1978, this shift in India has been hesitant, conflicted and furtive.

Some of the collections suggestions are indeed bold. One chapter argues for the scrapping of public
food distribution, which its author calls the most corrupt system ever invented. Another pushes for
the break-up of a state-dominated energy system, allowing new entrants into areas such as coal mining
or nuclear energy.

These proposals would be unpopular, which is perhaps why the populist Mr Modi shows few signs of
adopting them. Here his caution may even be wise. Wholesale privatisation seems an attractive solution
to many Indian problems, given the sclerotic nature of its government. Yet it needs careful consideration
in a country with few systems of public accountability, and fewer virtuous industrial tycoons.

Other ideas are more moderate, for instance those on labour market reforms. India needs to create as
many as 44m new jobs by 2020, a challenge that would be helped by giving more flexibility to
manufacturers. The authors conclude that significant changes to laws relating to strikes are politically
impossible, however, suggesting instead a range of technical (and thus more publicly palatable)
alternatives.

Taken together, Getting India Back on Track provides one of the most comprehensive and broadly
sensible sets of remedies for a decade-long malaise, covering everything from the capital account to its
mammoth railway network. The more important question is: will Mr Modi follow them?

Here the depth of Indias funk could be a perverse political advantage. Facing so many problems, it
should be easy to show early progress, while hinting at radical steps to come. The fact that Mr Modi has
done neither with great conviction is discouraging.

That slow start could stem from a sense of prudent gradualism; a recognition that attempts to push big
political changes through quickly can backfire in a country whose leaders hold a fraction of the power
wielded by their Chinese equivalents.

Yet this seems excessively pessimistic, especially given Mr Modis thumping mandate. India does not
want for ideas to rebuild its economy. For a decade, however, it has lacked leaders in possession of the
political arithmetic and courage to push through unpopular measures. Mr Modi ought to have both, yet
he has already missed opportunities to forge a decisive break with this lacklustre heritage.

The risk is that this becomes a habit, making comparisons with other reforming leaders even less apt.
True, Thatcher also started slowly, delivering her most far-reaching reforms during her second term. But
this can hardly be the parallel Mr Modis more fervent adherents had in mind.

The writer is the FTs Mumbai Correspondent

About the author (2014)

Ashley J. Tellis is a senior associate at the Carnegie Endowment for International Peace specializing in
international security, defense, and Asian strategic issues. As senior adviser to the U.S. undersecretary
of state for political affairs, he was intimately involved in negotiating the civil nuclear agreement with
India. Previously, he was senior adviser to the ambassador at the U.S. embassy in New Delhi. He also
served on the National Security Council staff as special assistant to the president and senior director for
strategic planning and Southwest Asia. Bibek Debroy is a professor at the Centre for Policy Research,
Delhi. He has worked in academia, industry chambers, and for the government, including in leadership
positions in the Legal Adjustments and Reforms for Globalising the Economy project and the
Commission on Legal Empowerment of the Poor. Debroy is the author of several books, papers, and
articles. Reece Trevor is a research assistant in the South Asia program at the Carnegie Endowment for
International Peace, where he previously served as a junior fellow focusing on South Asian security and
U.S. grand strategy.