The Hindu Business Line : <I>Babus</I> are not accountable and <I>netas</I> can be ignorant

A MINISTER throws tantrums about his portfolio, another makes a shocking statement that pulls down the markets, and yet another talks as if economics did not exist. Those who voted silently are resigned to watching and wondering: "Will it, won't it?"

Getting more heads to nod for policy decisions is a tough job, and if consensus were to be the guiding factor, average speed is destined to be low and small irritants may have the potential to snowball into avalanches.

Thus, when brinkmanship becomes the daily routine and survival survives under threat, a natural consequence would be The Crisis in Government Accountability. But that's the title of Dilip Mookherjee's book of essays `on governance reforms and India's economic performance', published by Oxford University Press (www.oup.com) .

Crisis and accountability are evergreen topics, and the theme of Mookherjee is "the importance and challenge of second-generation and third-generation reforms in the Indian economy in an era of increasing role of market forces".

While in the current context `reform' has taken on a different connotation, it is true that reforms can stumble on `corruption and maladministration', be choked by `weak legal and regulatory systems', and wither away when there is failure `to limit opportunities for fraud and embezzlement'.

For our new leaders who are inspecting their areas of operation, that lie battered by decades of tinkering, what their binoculars would show is a "development landscape littered with stories of large-scale diversion of resources of public funds, poorly performing schools and hospitals, and development projects ill-suited to local needs" and no trace of cost-effectiveness.

Aren't bureaucrats accountable, you may ask? Sadly, they aren't, and "whatever accountability exists is indirect". Babus are monitored by politicians who may lack "ability or interest" to control "bureaucratic corruption". Babus know they cannot run governments all by themselves.

For instance, "if the minister does not know whether region A has a greater need for a road than region B, how can he check if the bureaucrat who selected region A as the location of the road behaved honestly or not? The problem is, of course, further compounded if the minister cannot verify whether the road was built anywhere at all."

Two chapters discuss elaborately the tax system, both administration and enforcement. "The Indian tax administration awards tax collectors an effective monopoly over taxpayers in their assigned jurisdictions," writes the author, on the range of discretionary authority.

"Filed returns are stored in the local office, with no duplicates, making it very difficult to induce any kind of competition between tax collectors. A simple reform might involve assigning taxpayers to a group of tax collectors that select which taxpayers to audit from a pool. An evader would then have to bribe the entire group of tax collectors rather than a single one."

Mexican experience of `laptop audit', cited in the book, is about how "the scope for external political interference in penalty and prosecution activity was substantially reduced," by making audit selection procedures "less decentralised, more transparent, and based and better information."

A `fundamental' reform that the books suggests for the Indian taxman is to replace "the traditional culture of acquiring information concerning tax offences via brute force" with something less obtrusive — "a comprehensive method based on extended third-party reporting and withholding." A call for `human face', as Manmohan Singh would put it.

On the surface, one may not see any link between industrial sickness and law, but Mookherjee states that bankruptcy process is "an essential feature of a market economy" because it allows "ailing firms to be rehabilitated via legally enforced reorganisations."

Also, legal safeguards are needed to protect the claims of workers and investors against fraud and embezzlement of the assets of the enterprise by their managers, he adds. Trimming of laws is an imperative not to be lost sight of because almost every economic activity seems to be caught in a mesh of statutes, adding overheads in achieving compliance.

The last chapter is devoted to financial crises and regulatory failures, where one finds a discussion of the well-worn topics such as currency crisis, Enron and Harshad Mehta. But that's inevitable because the chapter is based primarily on a background paper written for the `1998 World Development Report' and a `two-part article in 2002 in a Bengali newspaper'. Is that adequate material for a theme as heavy as financial crises?

In the absence of an economic perspective bestowed upon recent developments in the field, there is a real fear that premises are dated and conclusions stale. That perhaps is a different kind of accountability most economists may find too onerous to fulfil.

Economics@TheHindu.co.in

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Babus are not accountable and netas can be ignorant