Just berating babus is a waste of time

While most applauded prime minister Narendra Modi for his full-throated repudiation of the bureaucrats-know-best policy of the last 75 years, former education secretary Anil Swarup had an interesting response. Tongue firmly in cheek, he tweeted that he “totally agree with @narendramodi when he questions occupation of all key positions by IAS ‘babu’ …” and then added a question to each such tweet. When Aadhaar was the creation of Nandan Nilekani, why is an IAS babu now occupying the same job; why is an IAS the head of the Competition Commission of India, the Central Electricity Regulatory Commission (CERC), the Insurance and Regulatory Development Authority of India or even, if you please, the committee for the construction of the Ram Mandir in Ayodhya?

That is, forget about replacing bureaucrats – or babu, to use the pejorative term for them – with private sector experts like Nilekani, Modi is employing them in jobs that are meant for domain experts. In which case, how does the prime minister expect to reduce this chokehold of the bureaucracy?

That he needs to is obvious given how the bureaucrats manage to thwart what seems to be the desire of their political bosses. A few days ago, to cite the latest example, Teamlease’s Manish Sabharwal wrote a piece on the de facto ban on online degree learning with just seven of India’s 1,000-plus universities and 50,000-plus colleges licensed for online courses; yet, the plan to allow the top-100 universities to do this was first announced in 2018, repeated in the finance minister’s FY21 budget speech and then again in May 2020 as part of the Atmanirbhar Bharat announcements. Indeed, while the government has spoken of freeing up institutions like the IIMs, the education bureaucracy came up with rules that would allow them to dismiss the board of the IIMs; the plan has just been nixed by the law ministry.

Similarly, while then finance minister Arun Jaitely and even prime minister Narendra Modi have spoken of the need to resolve the retrospective tax issue, as you read this piece, finance ministry officials are telling Cairn Energy to pay the tax amount – but not the penalty and interest on it – even though Cairn has won a global arbitration award for $1.4 billion.

There are several such examples that can be cited of how, after the politicians have made an announcement – oil and gas prices have been ‘freed’ and linked to market prices on at least two occasions over the past few years! – the fine print makes a mockery of it.

We can berate the bureaucrats for acting like ‘babus’, but you can’t really blame them since, unlike the politicians, they are the ones that are actually going to be held responsible in most cases. In the case of allowing all accredited universities to offer online course, the bureaucrats are probably resisting this since, they feel, this can lead to poor quality courses being offered. And, in the Cairn case, finance ministry bureaucrats probably feel they will be pulled up by the CAG for not exhausting all their legal options before paying Cairn, including asking SC to strike down the award on grounds of it violating ‘public policy’.

If prime minister Modi really wants to reduce bureaucratic roadblocks, he needs to do sweeping reforms, not incremental ones since the latter leave bureaucratic discretion untouched. The severe damage to India’s reputation as a country that respects global rules that has resulted from the Vodafone and Cairn cases, for instance, is directly related to the fact that, when the BJP first came to power in 2014, it did not remove the retrospective tax from the statute; then finance minister Arun Jaitley probably felt that he would be able to convince the tax bureaucracy to accept the global arbitration but, as we’ve seen, that was misplaced optimism. Jaitley wanted to make an omlette without breaking the egg but, as we know, that is an impossibility.

In 1991, to spur investment, prime minister Narasimha Rao and finance minister Manmohan Singh simply delicensed a swathe of industries; had they, instead, exhorted the bureaucracy to be more liberal in its outlook, it is likely that we would still be licensing capacity increases for each factory, even if the hike that would be allowed would be more generous. In the case of online education, why should only the top 100 universities be allowed; if a university is good enough to do offline education, why can’t it offer online courses? Indeed, why should only universities be allowed to offer online courses?

There is an interesting tale here from the run up to the 2014 elections. At a mid-sized gathering of investment bankers and other professionals, Modi brought up the instance of inspectors who certify lifts in buildings. While that is a reasonable safety standard, most would think, Modi rubbished this. It is also critical, he said, that the brakes of your car are functional, but I don’t inspect them. Why? Because you know that if they don’t work and you have an accident, you will be hauled up by the police and the courts. Surely the same logic should apply to a lift, he asked?

That, in fact, is probably the logic behind his abolishing the need to get almost every document attested by a notary public. But surely, nearly seven years into his government, he can’t just be citing just this example? If India has to progress, Modi has to do sweeping decontrol, with a view to eliminating political/bureaucratic discretion.

PSUs can’t be freed by exhorting ministry bureaucrats to be more liberal; they can only be freed if the Constitution is amended to remove them from the list of ‘instrumentalities of state’ since they are, in any case, operating in competitive markets. Tax disputes can only reduce if, instead of the plethora of exemptions, tax rates are slashed and there are no exemptions at all; tax rates have been cut but people/firms being allowed to opt for the old or the new regime keeps the uncertainty of the past. Why waste time with solutions like neem-coating of urea when the more workable solution is to free up prices and compensate farmers with direct cash transfers as has successfully been done for LPG. Indeed, if farmers had started getting cash transfers some years ago, the noise over the farm laws and the possible scaling down of MSP operations would have been a lot more manageable today.

Whether Modi does this with the help of bureaucrats – as Rao/Singh did – or with private sector professionals, or both, is his choice but it is only when such deeper reforms are carried out, and across the board, that India will truly be rid of the over-powering, and crippling, influence of babudom.