Effects of the Bureaucracy on our Economy

 Dr. Rao VBJ Chelikani 

Having historically originated under the monarchies and, later, imbued with the welfare state mentality, the bureaucracy is empowering itself and is still insisting on doing things that the citizens themselves can do better, quicker and cheaper. Whether one is employed in the public sector or in the private sector, every citizen as an economic actor has to have equal social impact, accountability, and responsibilities. The Finance departments in India behave like a state within the state, retaining the right to suspect the intentions of any other department. All departments, in return, assume that they have a right to suspect the economic intentions of any citizen and retain the authority to permit, inspect and audit all economic activities in the society.

Economic Mismanagement

India is, already, known as over-regulated and under-governed country. Mr. Narendra Modi is the first prime minister to announce his policy of minimum government and maximum governance, which is the cardinal principle of democracy. Yet, we are unable to reduce the excessive role of the Administration in the day to life of the citizen in the old fashion. The power of the central administration is so overwhelming that it contrives to put in place two obstacles for every one simplification announced by the minister, by way of reforms. Usually, it is played as a game, where whatever is given by the right hand is taken away by the left hand.

i). The Ease of Doing Business: The cost of doing business is very high in India. Outside investment-worthiness rating agencies like Moody’s, Standard & Poor’s and of Fitch Ratings have been keeping India at the lowest or next to the lowest level in the investment grade category of countries for many years. Our foreign trading partners are exasperated and our internal economic actors are frustrated. The progress made so far is farcical. It is ridiculous for a country that wants to be an economic power or a regional power to rejoice that in 2017, it is behind only 99 countries, instead of being behind 129 countries. Even this apparent progress, so far made, is thanks to the digitalisation, rather than to any leniency on the part of the Administration. There is a significant variation between World Bank's surveys and actual business conditions in the field. The WB measures a country's business environment based on written legal rules, rather than investigating the actual ground realities, in which the businessmen operate. Some governments might be gaining WB's rankings in the ease of doing business by tailoring the policies to specifically suit the WB's criteria, instead of genuinely retracting its tentacles over the citizens.

ii). The rules: The Government is looking at creating a centralised Authority for Advance Rulings (AAR) for the goods and services tax (GST) after finding divergent rulings on identical issues by state AARs, which are quasi-judicial bodies that allow assessees to get guidance on their potential tax liabilities relating to any transaction, beforehand. Their decisions are specific to each case before them. They are made in such a way that local firms are obliged to pay bribes and get things done in time and the foreign firms are obliged to engage Indians to deal with the Indian Administration. While the bigger firms among them spend fixed amounts and use political influence to tide over the mass of regulations, the millions of small firms are crushed under a quagmire of regulations and vexatious inspectors, who indulge in small but repeated corruption. When a foreign firm bribes to get things done, the political parties in the country that have not benefited by it, raise hue and cry in order to defame the minister concerned. Strangely, China proved to be more liberal than India in terms of economic regulations. Though a socialist country, the Chinese bureaucracy has been taking economic decisions very fast, as is observed in several instances. For more than a decade, China has been receiving ten-times more Foreign Direct Investments than India, even though we are an English-speaking liberal democratic country.

iii). Litigation: A good public servant should not suspect the intentions or doubt the honesty of his master-citizen, till his guiltiness is palpable. Right now, the officer punishes an innocent citizen by harassment till he proves himself honest. If a citizen is too often around the courts, one can praise him for being law-abiding and not taking law into his hands. But, on the other hand, if the government officers are resorting to courts, too often and too much, does it not indicate their authoritarian disposition? The Supreme Court had several times, castigated the Administration  for clogging the judicial system with frivolous cases. Under the garb of the ease of doing business, judiciary is being asked to intervene. There is a collateral damage caused by overcrowding of the system, besides financial liabilities of the government. In 2017, of the total 3.2 crore cases pending, 46% were filed by the Centre or state governments. And out of them, by 2015-2016, the Income Tax department has claims of 8.24 lakh crore as arrears and all of them are in different levels of appeals either by the department or by the citizens for years together.

iv). Sometimes, new rules are issued with retrospective effect, even upon the foreign companies and this practice is noticed as recently as in 2016.The Income Tax department has confiscated the dividends belonging to Cairn Energy in June 2017, by retrospective rules that are issued years after. Some departments do still possess very extensive powers, such as ‘search and seizure’, which is decried by many human rights groups, as ‘tax terrorism’ in the modern society, while more civilised and equally efficient methods are now available. While a department pursues some businessmen for economic offences, another department would revoke their passports, which would make them unable to return to India, when summoned by the courts. The Central Bureau of Investigation or the Enforce Department are so arbitrary and high-handed in investigating and arresting individuals that they are unable to convince the Interpol to issue a red corner notice (RCN) which is an international arrest warrant. When there is a dispute involving foreigner nationals, countries like Italy are exasperated about insensitivity  of the Indian bureaucracy to human rights with their indifferent procedures. The host countries where these accused are sheltered find it difficult to hand them over due to their humane procedures, in spite of the Extradition Accords.

v). The Flight of the Capital: The hilarity of the bureaucratic actions to promote foreign investment is evident from the fact that after long reflection, which is measured in terms of years taken, a Foreign Investment Promotion Board was created. Now, as a measure of more radical reform, the same is being abolished. What is at stake is not the changes that are to be made and announced, but the undue delay in effectively implementing what is already announced.

While inviting foreign direct investment, the Administration has been driving away its internal investors to foreign countries. It is estimated that between 2014 and 2017, thirty to forty thousand dollar-millionaires have shifted their residence. However, investing outside by Indians is not a total loss, as our past experience shows that it has its beneficial effect on the Indian economy too.

vi). Our Cooperative Movement: In order to propose a reform now, it is not necessary for us to claim that what is there should not have been there. Within the framework of the mixed economy, Jawahar Lal Nehru had tried to introduce, in a big way, cooperative economy and, it was, soon, over-powered by the bureaucracy, where the Registrar became the virtual administrator. Today, they remain as handmaids of rural politicians with huge non-performing assets. Israel, on the other hand, had adopted many new models of both rural and urban cooperative communities, which are, totally free from state control. The USA and France too, have autonomous agricultural cooperatives that make significant contribution to their national economies.

vii). Similarly, instead of institutionalising many welfare schemes and projects and entrusting them to the decentralised bodies, they are carried out, at least for five years, directly by the departments. The best example is the absence of efforts form a universal social security system and in its place, the departments administer a series of ‘ad hoc’ compensations, indemnities and gratuities. Such generous concessions are announced by the ministers at the time of the annual budget, whose beneficiaries are, carefully selected, according to their electoral logic. Many schemes to be implemented by the states are being administered from New Delhi and many functions which can be carried out by the local bodies are implemented by the state departments for political expediency.

viii). Bureaucracy in Public Undertakings: Soon after the independence, the Administration, including the planners, have had the merit of envisaging the setting up of their own institutions in vital sectors, like the infrastructure-building, irrigation, transport, communications, etc., when there was none to do so in the society. But, now, the citizens can invest and operate them better, cheaper and faster. In spite of it, the governments are not willing to get rid of the old public sector undertakings (PSUs). New projects of crucial importance to the future of the country are being blocked due to delays in getting permissions, environmental clearances, land acquisition, financial disbursements, etc. from other departments, sometimes, up to 8 to 10 years. Due to the administrative delays, the private entrepreneur's who are involved turn defaulters to the banks, thereby augmenting the non-performing assets of the banks. The situation obliges the banks to maintain high lending rates and reduce the volume of credit facilities for long-term projects in vital sectors. Similarly, many state government projects also undergo unbearable cost over-runs and delays, waiting for Central funds. There are many instances of projects being abandoned as nonviable after seven or eight years of gestation and after disbursing 50 to 60 percent of the initial project estimates, as mobilisation advances, etc. Though these financial disasters do not happen without the involvement of the politicians in power, they are not policy failures. In any case, whether it is department or a government institution, all the top lucrative managerial jobs are reserved for the senior administrative officers, while so much of appropriate managerial talents, is available in the open market.

ix). Skills and Knowledge:      

The enterprises, whether public or private have to be run by the professionals with new technical skills and latest scientific knowledge. Even if a civil servant is qualified technically at the time of his recruitment some thirty years ago, it would be a big challenge for him to make technical decisions, at a later stage, as a senior officer. Such people tend to be conservative, afraid of innovation and experimentation and keep young people at a distance. The computerisation proposed to the government banks in the Eighties has been resisted by the officers. For all jobs, experience and seniority of the person alone are not sufficient criteria anymore. Skills are needed; they are to be re-skilled and up--skilled constantly and very fast. The educational qualifications cannot precisely indicate a skill and give suitable remuneration unless the work is evaluated in terms of its performance and productivity. The present rules and regulations of the civil service are not capable of taking them into account. However, NITI Aayog, which replaced the Planning Commission, has, recently, announced that hereafter it would open itself up to recruit talent from the market and from the academies. Recently, the Government has announced that it would hire ten specialists of the rank of the joint-secretaries from the open market.