Where the economy is being chained

The redoubtable Economist (June 3rd - 9th, 2006), in a special report on Indian business, asks the provocative question: "Can India fly?".

The answer is that it has taken off; but its people could fly much higher without the fetters imposed by poor policies and incompetent government. Most objective observers share this cautious optimism.

The policy issues are mired in politics and populism. But Indian entrepreneurs and workers have a way of boosting production and productivity despite policy errors. The real problem areas are infrastructure, education and healthcare.

Power sector problems are very well-known, but half-hearted attempts by the Union, and populism, incompetence and corruption in states are severely undermining economic growth. When there is will, there are clearly ways of improving the situation.

Witness the much-maligned Gujarat. Three years ago, the losses in power sector were of the order of Rs.2,500 crore. In a bold initiative, the Gujarat government separated the agricultural feeder lines from domestic supply. Farm power is charged at Rs.850 per HP (at 1700 units consumption and 0.50 ps/unit). Today, all villages get 24-hour domestic supply, and the power board is making a tidy profit!

The Union itself is guilty of disjointed policy and incoherent execution in many sectors. Take energy sector. We have several players - ministries of oil and gas, power, coal, mines, non-conventional energy, and nuclear energy, and several public sector behemoths. Each functions as an isolated, vertical silo and there is no integration or convergence. This, at a time when dramatic changes are sweeping energy sector globally, and vital new initiatives need to be coordinated. Health sector provides another example. Nutrition, water supply and sanitation - three key determinants of health - are each managed in splendid isolation. Within health itself, the various disease control programmes, NACO, and AYUSH function as separate empires with very little convergence.

In states, the situation is at times even more alarming. Often key positions are filled routinely, with square pegs occupying round holes. The tenure of key public servants is usually under a year, and in many cases below 6 months! In this merry-go-round, there is neither authority to deliver, nor accountability. Everybody complains against everyone else. A classic system of realistic and plausible alibis is created, in which we have only victims and no villains. Not surprisingly, corruption is rampant.

In general, delivery of services, not withstanding a few notable successes, is poor. Education and healthcare are two important areas of failure. At the policy level, there is welcome recognition of past follies. More attention and money are now allocated to these sectors. In the absence of real reform in delivery, more funds would only lead to more leakages and dissatisfaction.

Do we have to live with this unhappy state of affairs, or can we improve performance? Will our economy be held back by poor governance? The answers lie in our approach to delivery over the next few years. A priceless opportunity beckons us. Indian economy can be truly unleashed and poverty ended if only public money is put to good use and services are delivered properly.

We certainly need comprehensive political reform to change incentives in public life and eliminate corruption. Equally, we need rational, growth-oriented, wealth and employment generating policies. Past orthodoxies need to be given up. But our economy need not be held back until these political and policy failures are addressed. Competent delivery can still be ensured within the political constraints, accelerating growth and reducing the burden of poverty.
There are four broad approaches which can yield significant results in delivery.

First, we need effective convergence of key sectors and services at all levels - Union, state and local. The fact that there are about 70 Groups of Ministers in the Union shows how disparate the functioning of departments and ministries is! Significant restructuring at every level is both necessary and feasible. This better coordination alone will improve both policy making and execution.

Second, a rational personnel policy needs to be evolved and implemented at all levels. Development of domain expertise, selection of the right person for the right job, a guaranteed tenure, clear mandate and adequate resources should be the key elements of personnel management. No elected government can completely ignore compulsions of politics, ideological affinity and personal chemistry. But it is possible to improve performance even within those constraints by sound management. Such management requires parallel recruitment for a tenure, competition, and honourable retirement for those whose strengths do not match the requirements of a growing economy. The barriers between public and private sectors should be lowered, and mobility should be encouraged.

Third, we need fusion of authority with accountability. The bane of our administration is complete divorce between the requirements of a job and the resources at the command of key functionaries. Mistrust, inadequate delegation, over-centralization, excessive procedural rigidities, and low risk-taking capacity are the characteristics of most public servants. As a result, most functionaries tend to take the line of least resistance. Routine files and meetings account for over 90% of the time, and neither innovation nor actual outcomes are pursued with vigour. We need to create a system of clear lines of accountability and clothe functionaries with commensurate authority and provide resources.

Finally, the focus must shift from expenditure and outputs to outcomes. Even physical targets are meaningless except in infrastructure sector, and outcomes need to be monitored in service delivery. For instance, educational attainments, health status, out of-pocket expenditure, economic burden of disease and skill levels can all be measured through random surveys with sufficient granularity to make assessments at district and block levels. We have impressive capabilities in organizations like NSSO, and they need to be strengthened to measure and assess outcomes in key sectors and programmes at grassroots level. Such feedback would be a tool for midcourse corrections as well as monitoring. The additional cost would be marginal, considering the vast outlays now proposed in key sectors of education, healthcare and social security.