By Invitation. ‘Policy paralysis’ redux

Two months ago, in his Independence Day speech, Prime Minister Narendra Modi outlined what I have called “Modi’s three resets”. These centre around rationalising subsidies after the 20 per cent annually compounded growth in subsidies under the UPA; attacking the river of black money which flowed thick and fast over FY04-14 as political middlemen gorged themselves on stolen subsidies and money looted from public sector banks; and attacking the model of crony capitalism which came to define India’s capex between FY05-09 until the Comptroller & Auditor General of India called time on this mode of doing business.

It is clear that the Prime Minister’s three resets are already impacting India — by triggering a pronounced slowdown in the real estate sector and by creating economic stress in rural India. However, it also appears that in its second year in power, the NDA is trying to push through other types of reforms. Key amongst these is the Goods & Services Tax Bill, which is stalled in Parliament. There is also the attempt to inject some life into the broken balance sheets of public sector banks and to fix the bankrupt power distribution companies in States such as Rajasthan and Uttar Pradesh.

However, despite the NDA’s will to reform India, the ineffectiveness of the bureaucracy is holding back the conversion of this ‘will’ into ‘action’. Our discussions with senior bureaucrats in Delhi suggest that seven key factors are adversely affecting the Indian bureaucracy. Three of these factors can be termed as ‘Modi-induced factors’, i.e. factors that are closely related to the Prime Minister’s distinctive style of administration.

One, whilst a select clique of bureaucrats has been empowered tremendously by the Prime Minister, the majority of bureaucrats in New Delhi is now subject to a high degree of micromanagement and scrutiny. Hence, the majority of New Delhi’s bureaucrats seem plagued by a sense of disempowerment.

Two, not only is the Prime Minister’s Office (PMO) closely involved in the recruitment of bureaucrats across ministries, but also the perception of underperformance leads to quick and unpredictable transfers that are often signed by the PMO in the middle of the night. Hence, New Delhi’s bureaucrats are dealing with a sense of tenuousness with respect to their career prospects.

Three, the Prime Minister has begun creating a web of performance management systems that are likely to adversely affect employee morale as well as bureaucrats’ desire to take initiative. Bureaucrats are now subject to biometric tracking of attendance as well as the requirement of generating reports detailing tasks undertaken.

The other four factors creating policy paralysis are ‘structural factors’, i.e. factors intrinsic to the Indian bureaucracy owing to its design and structure:

One, there is uncertainty of tenure. Historically, Indian bureaucrats have been transferred at the discretion of political parties. This has created a lot of uncertainty and fear among civil servants and affects their ability to take autonomous decisions.

Two, there are adverse effects of the Right to Information Act (RTI) Act. The passage of the RTI Act in 2005 has engendered fear in the bureaucracy as perfectly rational and unbiased decisions can be questioned retrospectively. In this regard, it is worth noting that the Prime Minister’s nod to allow prosecution of two joint secretaries in the coal ministry (for alleged misdemeanours from 2010) has made civil servants reluctant to sign anything lest they too be prosecuted five years hence.

Three, there is more subjectivity in the appraisal process. Greater weightage is given to subjective factors in the performance appraisal process of civil servants. This, in turn, has a bearing on promotions and transfers. The current system assigns 60 per cent weightage to personal attributes and functional competency, with just 40 per cent weightage to work output.

Four, as India’s economy nears the transition from being a ‘low income economy’ to a more complex free market ‘middle income economy’, our sources suggest that civil servants are finding it increasingly difficult to take technically sound decisions in Ministries such as Coal and Power, Finance, Oil & Gas, Environment and Telecom.

This problem could have been mitigated by the induction of subject experts; bureaucrats themselves, due to the design of the IAS curriculum, are essentially generalists with no specialist skills.

If the NDA is to avoid more blunders like the mishandling of MAT and the botched amendment of the Land Acquisition Act, it will have to find a way of squeezing performance out of the top IAS officers in New Delhi. The tempting short-term fix will be for the NDA to try to induct technocrats into either the PMO or into NITI Aayog but given the bureaucracy’s skills in running rings around people from the private sector, the NDA will have to dig deep in its personnel management of the civil service if it is to make a difference to the governance of this country.

The writer is CEO, Institutional Equities, Ambit Capital

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