by Rakesh Mohan
The impact on governance of this social-cum-communication revolution is being felt in a variety of ways. The most revolutionary change has been the 2005 Right to Information Act, which has empowered citizens to access information from government agencies pertaining to personal issues, grievances and entitlements. NGOs are also facilitating access of the poor and the illiterate to such information. Civil society organizations and the media have used the law to expose corruption, seek information about government policies and expose misuse of government resources. Some 5 million requests for information are filed each year.31 There has also been a proliferation of NGOs that monitor different aspects of governance from elections and political parties to the judiciary and corruption. The communication revolution has enabled a sharing of this information, resulting in an electorate that is better informed. Political parties are slowly awakening to this information revolution, attempting to use social media for their own ends. The growth of social media and the Internet is also forcing debates on issues such as the right to privacy, freedom of speech and censorship, copyright laws and the creative commons. Internet technology is therefore becoming both an area and an instrument of governance.
VI. The Governance–Growth Paradox
The rapid economic growth experienced in the last twenty-five years raises the question as to how this was possible with the steady deterioration in governance and institutions. Various explanations have been offered. Arvind Subramanian, currently chief economic adviser in the Ministry of Finance suggests, first, that prior to the 1980s, India was underachieving relative to the quality of its institutions. Thus, the relatively modest reforms introduced in the 1980s ‘allowed it to get a big bang’. Second, the decline of the Congress party and the consequent shift in power to the states allowed state governments to ‘differentiate themselves, not least in their ability to attract private investment’, especially following the gradual dismantling of industrial licensing.32Growth accelerated in the states that were able to do so.
Devesh Kapur argues that despite the declining quality of India’s institutions and political instability, India’s ‘polymorphic institutions’ have provided an ‘institutional safety net that has limited the downside’.33As institutions get weakened, space opens up ‘for both new institutions as well as other erstwhile moribund institutions’ and the ‘simultaneous cycle of decay and rejuvenation gives the system a certain resilience’.34 He cites the example of the Prime Minister’s Office which, over time, has emerged as a major institution for coordination. He also notes how the office of the President, the Election Commission and the judiciary—all institutions of restraint under the Indian Constitution—have sought to fill the void left by a weak Executive and Parliament. It could also be argued that markets have taken over many of the functions of the state in the post-liberalization period and that both the private sector and civil society have stepped in to fill the void left by failing service delivery by the state.
Economic growth occurs despite poor governance both in India and in most of the other fast-growing developing economies. But what is the quality of that growth? Typically, it is accompanied by high regional, income and asset inequality. The inequality is fed by both the policies that crony capitalists ‘buy’ with their financial contributions to political parties, by the rents that accrue from such purchases, and by the capture of the state as when the private sector borrows money for infrastructure provision from state-owned banks, which are then left with high non-performing assets. The growth also comes in the form of high energy-consuming urban construction and a rapid growth in private vehicle ownership as distinct from public transport, all contributing to a serious deterioration in the environment, with high social and private costs.
Economic growth and rising incomes should have resulted in better governance. As incomes rise, citizens demand better services and better institutions. However, a weak response to these demands from public institutions has resulted in the private sector stepping in to meet the demand inter alia through electricity generators providing insurance against power breakdowns from state utilities, security companies protecting citizens’ homes, and private provision of health and education. Even the poor, frustrated by absentee teachers and poor health services, are seeking out largely unregulated private providers that they can ill afford. This exercise of Hirschman’s ‘exit’ option has the unintended consequence of further reducing pressure on public institutions to improve their performance.35
However, a research paper by Nicholas Charron that examines corruption in twenty Indian states, based on a 2005 Transparency International survey, finds that states with higher per capita incomes, higher literacy and lower dependence on revenue transfers from the central government tend also to be less corrupt. The findings support the ‘incontrovertible’ long-run association between good governance and higher incomes. It also reinforces the view that the information and communication revolution described above is increasing awareness of poor service delivery and the large inequities in society. In a democracy like India’s, this is bound to force change on a reluctant political class.
Discussions about the governance-growth paradox tend to view governance as a means to development and higher income. But for the average citizen, and particularly for the poor, good governance is an end in itself, as important as rising incomes. It is a sad reality that after seventy years of independence, the poor and the downtrodden experience some form of humiliation each day, however minor, from their leaders who expect them to touch their feet, from bureaucrats who exceed their authority, and from a police force that sees its principal role as protecting ruling elites from the masses and interprets the rule of law as not equality for all before the law but the enforcement of law and order. For them, good governance is about restoring their self-respect and protecting their basic human rights.
VII. Priorities for Reform
There is a wide consensus in India about the importance of reforming governance. This is reflected in the election manifestos of political parties, newspaper editorials and in the views of the numerous pundits on the evening talk shows. Institutional reforms are also needed to sustain growth. There is no shortage of advocated solutions to this crisis of governance. Numerous reports from national commissions, committees, working groups and think tanks have examined the issues that need to be addressed. Reforms will not be difficult to design, for much of the work has been done in analysing the issues and discussing options. However, there is a broad consensus outside the political class that reforms need to be designed to protect what are unelected bodies, such as the judiciary, the administrative services and the police, from political interference. This is a recipe for inaction on governance issues. It is also unhealthy in a democracy to establish systems in which the people’s representatives are unable to control the organizations they need, to deliver services to citizens who voted for them. The only way that reforms are likely to happen is for civil society to engage the political class in a dialogue on governance reforms.
Three areas deserve the highest priority:
The first and the most difficult is political party reform. The agenda here is clear: inner-party democracy, transparency in the funding of elections, including the option of state funding, publication of the audited financial accounts of parties, and clear rules that eliminate criminal elements from contesting elections. Civil society needs to educate citizens on this agenda and support political parties that favor such reforms. This will be easier if the corporate sector, which primarily funds political parties, takes a more enlightened view of its long-term self-interest and refuses to support parties that are not willing to accept reforms. Political party reform will ease the task of other governance reforms and, in the longer run, result in a healthier political market in which new leaders emerge, who build their public support by delivering outcomes and who see governance reforms as facilitating this process rather than as a threat.
The second priority is to reform the process by which India’s gu
ardians of accountability (constitutional and statutory authorities and key regulatory institutions, including the RBI) are chosen so as to ensure that persons of integrity and exceptional quality occupy these offices. Sri Lanka has shown the way through its Nineteenth Amendment to its Constitution.36 A similar approach adjusted to our circumstances could be developed. The inclusion of eminent outsiders in selection panels would ensure that the process is transparent.
The third priority is to reform the institutions responsible for the rule of law: the judiciary and the police. In both cases, the institutions need modernization and world-class management, and they need additional resources to perform their critical functions. India spends far too little as a share of its national income on rule of law institutions, and it is paying a heavy price for it.
The civil service is at the heart of India’s governance and ignoring it could slow down any reform process. While wholesale reform is needed, and should be initiated, it will necessarily take a long time. However, critical initiatives identified in the Second Administrative Reform Commission report and discussed above need not wait and could shift the incentives officers face, strengthen domain expertise and restrain frequent transfers.
While establishing priorities is important, governance systems are interdependent and closely interlinked. A failure in one area could prevent progress in another. The gross understaffing at senior level in all institutions, and at all levels in the case of the police, accompanied by high vacancy rates in relation to sanctioned posts, is part of a larger pattern of under-investment in institutions, which urgently needs to be addressed.
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11
Changing Colours of Government–Business Relations
Tarun Das
Business and government worked as one team on domestic and foreign-policy issues. This period represented a new phenomenon in government–business relations and much credit has to go to the officials who were ‘secure’, were comfortable interacting with business without, in any way, being compromised.
Backdrop
Before 1947, Indian business was aligned with the Indian political leadership. The ‘Bombay Plan’ framed by J.R.D. Tata, G.D. Birla and other business leaders outlined an economic development strategy for post-Independence India, but, after 1947, the distance between the public and private sectors only grew.
This was reflected in the government’s Industrial Licensing Policy, the Industries Development and Regulations Act 1956, the Monopolies Act, the Monopolies and Trade Practices Commission and a host of other legislative and policy measures to limit the freedom of the private sector to grow. Additionally, a new term was introduced: the ‘public sector’, to occupy the commanding heights of the economy. Essentially, this constituted a reflection of mistrust of business, with the government imposing a micromanagement economic policy regime.
This process continued till the 1980s, resulting in distance, differences and even confrontation between the government and the business sector. However, some of the larger business groups thrived within this system of controls by exercising their own influence and pre-empting capacities. Particularly odious were the restrictions on small businesses to grow. Artificial limits were placed on small entrepreneurs to access finance and other facilities. Entrepreneurship was not in favor!
As a result, the colour of government–business
relations was a depressing black.
Early Changes
The first real sign of change in the relationship between the government and business came in 1983, when Rajiv Gandhi (then general secretary of the Congress), called the Association of Indian Engineering Industry (AIEI), the predecessor of the Confederation of Indian Industry (CII), to brief him and other political leaders and senior officials in a closed-door, several-hour-long session on ‘industrial development’ issues. This went far beyond formal protocol meetings.
He continued this process of informal consultations and briefings, which included ministers and senior officials. This was very different from the previous format of written representations by business; usually no response from the government; and meetings and calls on ministers and officials, which were largely protocol and infructuous. It was a frustrating time characterized by little or no dialogue. The exception: between T.A. Pai, industry minister for a few years, and Mantosh Sondhi (secretary, heavy industry and, later, secretary, steel). Both engaged, listened and acted to support a new model of government–industry dialogue in their area of responsibility. They did not have a hostile or negative attitude towards business. Quite the contrary.
Rajiv Gandhi took the engagement to another level when he became prime minister. On 22 March 1985, he spent time with AIEI, focusing only on export strategy. In May 1985, he overruled the objections of the ‘system’ to take a private-sector delegation of eighteen CEOs from AIEI to Moscow on his first state visit. In a meeting in Moscow during that visit, he said that private-sector entrepreneurs would change the future shape of India. This was long before Indian business had any such aspirations.