governance, political economy, institutional development and economic regulation

Archive for August, 2016

The Monk and Haryana’s Assembly

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Haryana’s folk dances are vigorous and fiesty like its people. Photo credit:alchetron.com

Haryana wears its heart and mind on its sleeve. There is a lot of brawn and bravado but little guile here. Last week, the Haryana Assembly listened in rapt attention to a pravachan (teachings of a holy person) by a Jain monk. Alarm bells rang immediately in the citadels of prickly pseudo-secular vigilantism.

The Indian Constitution clubs Jains, Sikhs and Buddhists under the broader rubric of “Hindus”. So, the choice of a Jain monk, rather than a Hindu priest, to preach to the Assembly was a clever and far-reaching tactic to formalise the mix of religion with politics. Clever, because the minority Jain community is being used as a proxy for Hindu thought. Far reaching because, frankly, it was disturbing, coming from an overwhelmingly Hindu state, ruled by the BJP.

The politico-religious cocktail 

In these fractious times, an overt mix of religion and politics is unusual. The practice has been to keep religion distanced from the formal processes of the State, whilst discreetly extracting political mileage from religious discord. Secular fundamentalists cavil that unless the strictest oversight is exercised, in this God-fearing, Hindu dominant country, religion can creep into politics and governance, to the detriment of marginalised communities. They have a point. In earlier days, prayers on public occasions were explicitly secular. Holy men from all major religions were allotted time for doing their bit. But this tradition has waned during the last two decades. Hindus no longer feel obliged to be subdued, lest they offend minorities. This is a healthy development. Truth needs to be spoken and recognised before reconciliation can happen. Paying lip service to secularism, whilst practising a more partisan strategy, has done little for those away from the mainstream.

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1986 – Shah Bano – a Muslim, who had to fight a majority government, pandering to populist Islamic orthodoxy, for getting maintenance from a divorced husband, even after getting relief from a progressive judiciary.  

India: a “benignly Hindu” majority state

The “syncretic” culture of India is predominantly Hindu. We are more comfortable with Barelvi Sufi version of Islam than the more strident Wahhabi Deobandi type. This illustrates that strident, ritualised religion — whether Hinduism, Islam, Christianity or Sikhism, does not align with the benign and neutral constitutional provisions. Citizenship, not religion, is the primary identity of Indians. This is the essence of a modern, secular state.

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Haryana: Treading thorny paths

Haryana has initiated a novel experiment of democratising religion by inviting a never-before direct interaction between a religious leader and elected legislators. This has been long overdue. Legislators reflect voter preferences better than intellectuals. But their formal duties thrust them into an artificial bubble, which bars frank recognition of the extent to which religion both deeply divides and elevates India. Nothing wrong in puncturing the bubble. But the Haryana experiment will lack credibility as a “positive new beginning”, unless it promotes similar interaction with religious leaders of all denominations.

Religion can be inherently divisive, particularly in the highly-contested political environment of democracy. This is why Communist regimes stand out from other political parties, in that they steadfastly ignore religion. Harkishan Singh Surjeet, the wily politician and grand old man of the CPI(M), passed on in 2008. He was a Sikh. But at his funeral, there were no religious rituals beyond a spirited Lal Salaam. Contrast this with the traditional rituals which accompany the sendoff for other departed leaders.

The Indian “glue”: beyond religion?

Hum Hindustani poster

The overlay, mostly incipient but often explicit, between religion and politics, has been a fact in the subcontinent since Independence. Pakistan hived itself off into an Islamic state consisting of physically and culturally separated West Pakistan and Bengali-speaking East Pakistan, now Bangladesh. Surely, the fact that Pakistan split subsequently, despite a common religion and that Nepal, despite being a predominantly Hindu state, holds its sovereignty dear, sufficiently illustrates that Hinduism is not the primary glue which binds India. India is predominantly Hindu. But significant political jurisdictions, where 32 per cent of our people live, are not. These states cannot ignore the salience of a plural polity. Nagaland and Mizoram are predominantly Christian; the Kashmir Valley is Muslim; Punjab is 60 per cent Sikh; 20 per cent of West Bengal, 18 per cent of Uttar Pradesh and 17 per cent of Bihar is Muslim; 19 per cent of Kerala is Muslim and 25 per cent is Christian; Goa is 26 per cent Christian.

Sanitize religion for inclusive democracy

Rather than hiding from religion as an identity, dealing with it upfront and sanitising it democratically, could have real value. The pseudo-secularist approach, driven by 1950s beliefs in modernity versus tradition as values, rather than processes, relies on insulating politics from religion as the right way to go. Nothing could be worse, if the ground realities do not reflect this belief.

Far from fading away, across the world, religion as an identity is fighting back. And this is true across all religions. The modern state needs to explicitly factor in the resilience of religion as a treasured personal belief. But just as surely, the State needs to enforce constitutional rights across all religions. In particular, the religious marginalisation of minorities, dalits, women and the lesbian, gay, bisexual and transgender community come to mind. The available constitutional safeguards need to override religious biases against these communities. Upfront, visible confirmation of this intent by the leadership would be transformative.

If Haryana has this resolve then bridging the gulf between politics and religion makes eminent sense. If the moral fiber of politicians can be strengthened by religion, without diluting their constitutional commitment to safeguard the marginalised, the benefits of religious teachings far outweigh the costs. After all pragmatic Haryana filters all actions through the “value for money” lens.

But it is a thin line the legislators walk between legitimising naked majoritarianism — Haryana is 95 per cent Hindu — and spring-cleaning their minds as they run through the full gamut of multi-faith religious discourses in the Assembly. The stout bamboo lath (stick) that the archetypal Haryanvi “tau” (great uncle) is caricatured to carry is as useful to balance on a tight wire as it is to subdue dissent. It all depends on the intent with which it is wielded.

 

Adapted from the authors article in Asian Asian August 30, 2016 http://www.asianage.com/columnists/jain-monk-house-unhealthy-precedent-052

Us versus Them

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Prime Minister Modi addresses young IAS officers – the elite civil service of India, February 16, 2015.

“Tribes” exist in India other than the ones provided for in Part X of the constitution. The largest is the “Tribe” of government servants – to be distinguished from the even larger body of public servants.

Sheltering under the benign glow of the Ashoka Pillar lions, this tribe is the worst afflicted by the “Us versus Them” syndrome. The “Them” in this case being private entities, derisively called “box wallahs” during the colonial period. This is odd for an economy where the private sector contributes around two thirds of value added. How can we develop more empathy between the two “tribes”?

Bridge the chasm

First, systematically bridging the chasm between government systems and private sector processes can help. Yes, private business works for profit whilst government works in public interest. But both work in the same economic environment. There is little reason then, for such a wide chasm in systems and processes.

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Winds of change: Firebrand Chief Minister, Mamata Banerjee “Didi” of West Bengal has Amit Mitra previously of FICCI (a premier business association) as Finance Minister. Seen here rapping with Kolkata industrialists. Photo credit: The hindu.com

Better accounting systems

One such chasm is the system of accounts used by the two. Government follows the cash based accounting system. The formal private sector uses accrual based accounting. In a cash system, the focus is on cash-in and cash-out. But the cost of future liabilities and potential receipts foregone tend to be overlooked. Government can afford to do this. It can print money or just raise taxes to bridge the deficit. But like in a Ponzy scheme, fiscal unsustainability catches up and eventually ends the party, although at huge economic cost. Government already disciplines itself with strict constrains on public deficits. We should not relax this constraint.

But it is also important to transparently cost our contingent liabilities and share these with citizens. We do not do this very well. As a result, even government managers lose sight of these because the eventual cost of adopting the business-as-usual approach is hidden. Similarly, the opportunity cost of indifferent asset management is largely ignored within government. Accrual accounting helps generate such future costs.

Factor in the cost of risk

Second, government routinely underestimates the cost of risk incurred from operations. For example, government cars or buildings are never insured against loss or damage. Project estimates never factor in risks like the cost of time overruns or cost creep, despite a long trend line of evidence to the contrary. The cost of failing to meet targets is left open ended.

Consider the case of nuclear power. Our strict liability law requires private suppliers to bear the risk of damage from contamination. But the real risk is borne by a publicly owned General Insurance Company and indirectly by the government. It is the same with public sector banks whose losses from massive bad loans in the past, are now being borne by the government. Government must be more transparent whilst accepting risk. Accrual accounting unearths the data required for factoring in the risk of failure.

Government as a participant

Third, government is unused to be a mere participant in the commercial eco system. This derives from its sovereign mandate to be a rule maker and regulator. It also has sovereign functions. No one would want to replace the Indian army with private military contractors. Citizens prefer better policing to paying for private guards. No one wants unelected non-state entities to make our laws. Similarly preserving natural resources and the provision of public goods are best regulated by the government and not by markets.

But modern governments have added on a host of non-core social and economic functions, including the actual delivery of public services. Some of these can be outsourced  to the private sector – electricity supply or transport services. For others building “Chinese walls” between officials who discharge sovereign functions- like formulating policy, proposing legislation and developing programs – and others who implement programs and projects can internalize private sector concerns into the government.

Government entities like the Indian Railways; defence production units; public research laboratories; drinking water utilities; irrigation departments; public works departments; public institutes of tertiary education and hospitals can be usefully extracted from government, into publicly owned corporations subject to all the regulatory requirements as the private sector.

Stepping out of the “confining glow” of government and becoming a public limited corporation, even if it is 100 percent owned by the government, changes the organizational culture. In colonial days, financial relief to rehabilitate drought hit farmers was handed out by District Collectors. Since the late 1970s we have used public sector banks for this purpose. Today, crop insurance is the financial backstop for failed crops. This will incentivize even private banks to expand rural lending for profit. And farmers will not have the incentives they have today to exchange loan forgiveness for votes.

In the Union government alone, 66% of the 3 million civilian staff can be hived off to corporations. If this mammoth task seems undoable, look back to 2000, when the Department of Telecommunications (DOT) was restructured and 320,000 staff hived off into the Bharat Sanchar Nigam Limited (BSNL) leaving the DOT with just around 3000 staff.

Copy-paste the Telecom story

Telecom grew unshackled once the government stopped worrying only about protecting BSNL.  The empowered regulator -Telecom Regulatory Authority of India- in sync with the government since 1999, developed a fiercely competitive market. Private providers cater to 90% of the market. Subscribers have increased from a paltry 0.3 per 100 in 1999 to 88 per 100 population – pretty close already to China, which has 95 per 100 but at a per capita income five times higher than India. Indian telecom tariffs are a fraction of what they were in 1999 and are the lowest in the world. A telephone connection with a direct dialing facility was the preserve of business and the elite, fifteen years ago. Today a mobile is in the pocket of the common man and has become a can’t-do-without tool for empowering women. Low cost, high quality wireless internet access is expected to double, the 300 million internet users today, by 2019.

This transformation was achieved by deliberate, visionary steps taken to restructure the government and the telecom market for growth and efficiency. Application of these principles, across all sectors, can liberate the economy from the shackles of inherited, institutional constraints; bridge the “us versus them” chasm and squeeze out the fat in government.

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Digitally savvy India’s young are its future Photo credit: Globallearninggroup.com

 

A new “living wage” f0r Delhi

Populism, buttressed by dodgy economics, has become the fashion statement in politics. Last year, the Union government approved handsome “real” increases in government salary. There was little justification for doing so since the government salaries were already fully indexed to inflation and the largesse couldn’t have been justified as a reward for higher productivity.

The default justification was that more money in the hands of government employees would kick start a virtuous circle. Higher demand for goods and services would lead to expanded supply, more jobs and just possibly, more income for the rest of us.

AAP disrupts the cozy status quo in Delhi

This week, the Aam Aadmi Party government in Delhi, used similar tactics to grab eyeballs on Independence Day. Evoking the high moral stance of re-distribution of wealth and the economic principle of boosting demand as justification, the government declared massive increase in the minimum wage. In effect, it imposed a “living wage”, for workers in Delhi.

The impossible dream of “mandating” the end of poverty

Child searches for valuables in a garbage dump in New Delhi

The concept of a “living wage” — pegged significantly higher than the minimum wage — with an eye to decrease poverty has been used in over 100 urban jurisdictions in the United States since the late 1990s. It has also been used to set the national poverty level in India. But it is pegged at very low levels.

In Delhi, chief minister Arvind Kejriwal has proposed that the minimum wages of unskilled labour will be increased from Rs 9,500 to Rs 14,000, semi-skilled Rs 10,600 to Rs 15,500 and for skilled Rs 11,600 to Rs 17,000.

The hike seems unreasonable given that the minimum wage in Delhi is already 35 per cent higher than in neighbouring Uttar Pradesh and 72 per cent higher than in adjoining Haryana.

Delhi is rich but…

It is true that Delhi is relatively rich. Its per capita income of around Rs 18,300 per month is the highest among the states of India and the top 10 metros. Consequently, there is a case for setting the “living wage” in Delhi reasonably higher than in the neighbouring states, purely on the grounds of equity.

The real issue is whether a 47 per cent increase is warranted and how comprehensively should the “living wage” be applied? If it is applied just to the establishments governed by the Factories Act, then it is little more than populism. There are only around 8,000 such factories in land-hungry Delhi and employment in them is static.

If the intention is to enlarge the coverage of the “living/minimum wage” to all registered shops and establishments, which employ around 20 per cent (one million) of Delhi’s five million workers, then the economic consequences can be more substantial.

Mandated wages hurt business and make it shift out 

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Photo credit: blogs.ft.com

The negative impact will be felt in price-sensitive, low value-addition segments like clothing, food and household goods, where higher wages will hurt business profits. More importantly, will a similar “living wage” follow for the one million workers in the informal sector — household help in rich and middle class homes and in unlicensed small establishments? If so Delhi’s privileged elite and wannabes may have to look for a lifestyle change – let the ayah go and manage their own babies; cook for themselves or use an app to order in; make their own beds; wash and iron their own laundry and learn to use a vacuum cleaner. And what of the ubiquitous car drivers and guards who lounge around the front gate of Delhi homes? Will the well-off opt for Ola and Uber instead?

Poor enforcement can make mandated wage a sham

Mandated high minimum wages, far above the market rate, encounter three problems. First, enforcing payment of the mandated wages depends crucially on clean, clever and consistent regulation. In its absence, it encourages the petty but crippling, corruption of “inspector raj”. Enlarging the scope of inspector raj in Delhi, even as it is being diluted in Rajasthan and Telangana sends the wrong message to investment for increasing jobs and private sector growth in Delhi.

High wages result in loss of unskilled jobs

Second, studies from the US show that the benefits are not uniform across the entire spectrum of workers. On average, unskilled workers lose the most from a high minimum wage because employment declines even as a smaller number of workers, who remain employed, benefit from high wages. Mandated wages rarely benefit skilled workers. Governments tend to be conservative in fixing the differential for skills. Delhi provides only a premium of 21 per cent, or `80 per day between unskilled and skilled work. The market premium is already between 75 to 100 per cent. A mason gets twice the amount as his unskilled worker — often a woman, who does the manual work.

In-migration increases fiscal pressure to provide public services

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High, mandated wages attract in-migrants to cities. photo credit: http://www.rediff.com

Third, pegging a price for labour far above the market rate increases the fiscal burden. This happens directly when government salaries are needlessly enhanced. But it also hits the government budget indirectly, when applied to the private sector. Higher the mandated wage for unskilled work the more attractive it becomes for migrants. With open borders, no control on migration and the Delhi government committed, rightly so, to provide a basic quality of life for all — free water, free medical care, free education, cheap electricity, improved toilets and paved roads — the resulting fiscal impact can be crippling.

Immigrants reduce the market price of unskilled labour

One way of ensuring that market wage rates remain aligned with mandated wages and are not beggared by competition from in-migration, is to licence city workers, as in China. But it is difficult to do this effectively in a governance environment of pervasive corruption. Licensing is a one way street to inefficiency and corruption. If government land cannot be protected from encroachment by the mafia, there is little hope of implementing an equitable worker licensing regime. Railway stations are a good example. Try getting a licensed coolie to carry your bags at the stipulated rates and you are more likely to miss your train.

Test the viability first in government contracts

The high salary of unskilled government workers already provides a wage floor. But the incremental numbers employed are limited. The trend, since 1990s when the government adopted the practices of “new pubic management”, has been to outsource non-core services i.e. cleaning, canteen, security and office support. Worker productivity clearly increases under private management. But there is insufficient evidence that the wages paid to them reflect this higher productivity. The apprehension is that the workers will suffer from price competition to get government contracts.

This is a perverse and unintended outcome. Tightly regulating the private contracts that are funded by the government can ensure that the mandated wages are passed through to workers. And contractors do not corner the wage increase. This is how the financial viability of the enhanced wage rates should be tested before imposing them.

But there is little point in cultivating a small, handsomely paid labour “aristocracy”, as the CPI(M) did, whilst throttling investment and employment.

CPIM

Adapted from the author’s article in Asian Age August 19, 2016 http://www.asianage.com/columnists/how-viable-are-hiked-wage-rates-333

Federated Tax is National Glue

border crossing

Border controls across India’s 30 states fragment it economically. The Arvind Subramanian Committee Report, 2015 on Goods and Services Tax-GST, cites economic fragmentation as responsible for 15% in welfare loss. Hopefully, with the GST legislation on its way, the sight of trucks waiting patiently to pay tax will disappear.  Photo credit: http://www.thehindu.com

Expectations are unrealistically high from the long delayed move to amend the Constitution and levy a common Goods and Service Tax (GST- a value added tax) across the Union and all state governments. Truly, this tax can bind India far better than Bollywood or the All India Services have done thus far.

Like the proverbial blind men describing an elephant, each segment of stakeholders see only how the GST could benefit them. Consumers eagerly await lowered retail prices once the pancaked tax embedded in the value chain can be set off.

Suppliers hope that lower tax incidence will enhance their competitiveness versus imports. Studies suggest welfare gains of five percent by reduction within state transaction cost and as much as 15% for supply across state borders.

Tax payers are ecstatic at simplification — the clubbing of more than a dozen individual taxes into a single tax.

The government looks forward to additional tax revenue from better tax compliance on a tax base made larger by higher economic growth.

Governance evangelists are pleased at the potential of reducing corruption, inherent in diluting the incentive to evade tax. This will build on the existing mission to make tax regimes transparent and accountable. Indirect tax revenue grew 29% in the first quarter of this fiscal year, despite merchandise imports contracting by 14% — a tribute to efficient tax collection.

Unemployed students and their parents look forward to a revival of industry and more “good” jobs thanks to efficiency led higher economic growth.

Road freight transporters await the benefits of reduced transaction time and cost. Today 25% of a trucker’s time goes in just waiting at border Octroi posts.

But reality will bite

However, several of these expectations are unlikely to be met over the next three years. There is a trade-off between enhancing tax revenue for the government and reducing prices for consumers or costs for suppliers.

There is also a trade-off between making the GST comprehensive, thereby plugging tax evasion opportunities and shielding small tax payers from the cost of compliance to become a part of the digital audit chain. Eighty five percent of the 9.4 million taxable entities are small, with an annual turnover less than one crore Rupees.

Ensuring that no state government is harmed, also called revenue neutrality, poses the risk of pegging the tax rates so high that they constrain demand and pass no benefit to consumers. Alternatively, the government has to breach the fiscal deficit targets to finance the compensation, but risks stoking inflation.

The Arvind Subramanian Committee Report of 2015 discusses all the trade-offs, pitfalls and optimal options. It is a must read for those interested in an informed appreciation of the issues involved.

Federalism — the real winner

The real winner has been the principle of federalism which has been visibly and practically implemented in public interest. The continuous work on the GST spanning a decade and the directional consensus across three separate Union governments and similar changes within the state governments is heart-warming for all those who would like India’s commitment to federalism, to be more than skin deep.

Similarly, political parties evolved a consensus in Parliament (even the AIDMK’s opposition was muted to walking out, but not voting against the motion) to pass the one hundredth constitutional amendment illustrates that plural and inclusive democracy is vibrant in India.

Naysayers opine that political parties may agree to a generic, enabling provision such as this one, but they will be pricklier when it comes to putting flesh on the bare bones. They may be right. But all negotiations have to begin by defining the envelope within which there will be give and take. This is exactly what happened in Parliament on August 4 last week. Now after a simple majority of the State Assemblies give their assent to the Act, it will be ready to be presented to the President of India to become the law.

Thorny issues remain

However, thorny issues still abound — defining the tax base and thereby the exemptions to be allowed; specifying whether the exemptions are indefinite or have a sunset clause; setting the tax rates for the Union and the States; identifying the existing Union and state government taxes which will be rolled into the new GST; writing up the new model law; specifying the principles for tax assessment and to identify the place of supply at which the new tax becomes payable.

All these are to be worked on by a newly constituted GST Council consisting of all the State Finance Ministers and chaired by the Union Finance Minister. This institutional innovation embeds the concept of federalism even deeper.

The process of rolling out the GST will require a great deal of analytical legwork of the type done by the Subramanian Committee; intensive monitoring of the IT backup for extending digital invoicing and tax payment and coordination of activities across the state governments.

Attempting all this from within the Revenue Department of the Union Government would be an unbearable burden. It would distract from the just-as-vital task of actually bringing the bacon home — enhancing tax collections to 13% of the GDP from 11% today. It does not help that the Revenue Department gets swamped over for at least nine months by the annual budget process.

GST Secretariat

A stand-alone GST Secretariat with a defined budget and human resources can hasten the pace. The Council and its Secretariat could be attached to the Department of Revenue of the Union Government for administrative and budgetary purposes. But, it must have a level of autonomy if its deliberations are to be credible.

The experience with exclusively Union Government staffed secretariats, servicing federated institutions, is not encouraging. The Planning Commission failed to be a credible secretariat for the National Development Council. Its successor — the NITI Ayog — is a Union Government think tank. The Home Ministry based Inter States Council suffers similarly from a Union government bias.

The GST Secretariat should be a mirror of the federated GST Council itself — staffed by officers drawn directly from the state governments and the Union Government. In deference to the pre-eminence of the Union Government, it should be helmed by a Secretary General proposed by the Chair. But in the spirit of true federalism, all senior appointments should be ratified by the Council members.

The Secretariat should be lean and skills based, not exceeding 100. The officers nominated by the States should be paid by the state governments. They would represent state government interests even as they work for the Council. Having both, ministers and senior officers from state governments, represented in the Council and its Secretariat respectively, is federalism at its best. The ensuing bottom upwards consensus will facilitate time bound decision making. This may be a baby step for federalism, but it is a huge leap for indivisible India.

The tax collectors’ revolt

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Last week’s “revolt” by senior income tax officers, meeting in Mumbai, against alleged micro management by the Union Revenue Secretary is unlikely to bother the average citizen. If anything, citizens would welcome glitches in tax collection behind which they can hide.

Mind the growing gap

But the revolt deserves attention because it illustrates a growing gap between officers and the political leadership. A similar gap resulted, earlier in 2015, in the extended and emotive agitation by army pensioners, for implementing the principle of One Rank One Pension (OROP). They and serving officers believed that it was a just demand being scuttled by the civil bureaucracy which acts as a gate keeper between the army and the political leadership. The revolt of the tax collectors is the second time that short circuited wires, between the political leadership and field level officers, are being exposed.

Bad strategy but genuine angst

The instrument chosen, by the tax officers, to voice their concerns via a resolution is questionable in terms of its efficacy as is the selection of the flash point for making their case. Unlike the army, income tax officers are no ones’ favourite person. The income tax department is, unfortunately, generally perceived as being self-serving and uncaring of citizen rights. Consequently, an upsurge of public sentiment in their support, as was the case for OROP, is unlikely. More likely, citizens would advocate even harsher disciplinary measures to pull up the department. Collecting tax is a thankless job.

The choice of flash point is similarly questionable — the transfer of a tax officer who allegedly adopted unfair means to boost his end-of-year performance. He issued a huge tax demand on a public sector bank just prior to the annual deadline and then allowed a refund of most of the tax amount immediately thereafter — a cynical “win-win” strategy for both the officer and the bank.

No one could possibly defend the officer’s use of “temporary tax terrorism” tactics. But the summary manner in which he was “punished” by being transferred (not officially a punishment), on the intervention of the Revenue Secretary, seems to have rankled. It does not help matters that the Revenue Secretary is traditionally from the Indian Administrative Service (IAS) but exercises oversight over the functioning of the Central Board of Direct Taxes (CBDT) under which around 8000 Indian Revenue Service (IRS) officers work. Incidentally there are seven senior officers of the IRS in the CBDT — the apex body for exercising operational control over direct tax administration. But none of them can ever break through the glass ceiling prescribed for them of the rank of a Special Secretary. This is lower than that of the Revenue Secretary, though they get the same pay.

Only empowered agencies perform

In India, we have not developed a culture of equality between field agencies and the secretariat. It is only in the armed forces that the correct equation between the secretariat and the field agency is maintained. This is visible during the republic day celebrations. In the line up to greet the President, the Vice President and the Prime Minister, the Defence Secretary stands lower down than the three service chiefs of the army, the air force and the navy. This is how it should be for all field level entities of the government. The officer in the secretariat must never be the person perceived to be in charge of the field level operations. Maintaining the principle of unity of command and responsibility is a pre-condition for efficient functioning within an agency.

Towards a more nerdy Secretariat  

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The job of the secretariat is to assist the Minister in parliamentary work. It is perverse to adorn secretariat positions with high level administrative powers. The nuts and bolts of administration must be outsourced to the concerned agencies created specifically for the purpose. The role of the secretariat must shrink. The example of Minister for Railways, Suresh Prabhu, is worth emulating. One of the first things he did, on assuming charge, was to delegate away most of the operational powers, centralized in his office, to the Regional General Managers. A secretariat officer enhances value, not by banging people on their heads, but by skillfully using an insider’s appreciation of the operating environment and superior analytic skills to facilitate the functioning of field agencies. Making officers in field agencies perform better is squarely the job of the head of the concerned agency.

In a more evolved work environment, the secretariat is where policy and legislation is formulated. The field agency is where programmes are fleshed out and operations monitored for results. The relationship between the two must not be hierarchical as it inevitably is today. Policy formulation and programme implementation are two entirely different albeit symbiotic specialisations. There must be give and take between the two. One way of ensuring this is to make the heads of both the secretariat and the field agency of equal rank. Indeed, this is one way a Minister — who often might not be well acquainted with her charge — gets a rounded perspective of the issue at hand.

The bottom line is that, whilst the Mumbai IRS officers have chosen their battle badly, their cause, as indeed the cause of all other specialised government agencies and cadres, needs deeper consideration.

We should be moving over to a new governance architecture which values specialisation and extends equal opportunities to all cadres, particularly those which already exist in the Union government. IAS officers, unlike officers from the IRS, are on deputation from the state government cadres to the Union government. The IRS is a home grown, central government cadre. The logic for not letting the IRS manage its own house is questionable. Inserting an IAS officer between the political leadership and the IRS seems an archaic and inefficient way of managing the vital tax function.

The manner in which a majority of the senior positions in the Union government are “reserved” for the IAS is archaic because it does not recognise the heightened role for specialisation in modern administration. Law, Tax, Public Finance, Infrastructure, Human Development, Industry and Trade, Natural Resource Management, Defence, Security and Intelligence are all stand-alone disciplines in which practitioners spend their entire working lives. It is inconceivable that value can be added in policy formulation; program conceptualisation or project implementation, without the relevant experience and skill.

Lift the glass ceiling for specialized central services

Inflection points are always graphically depicted by glass ceilings getting smashed. Institutional wisdom lies in removing glass ceilings as soon as they develop cracks and well before they are smashed by the force of change.

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