From UPSC perspective, the following things are important :
Prelims level : Nothing much
Mains level : Civil Service Reforms
There is a need for civil service reforms to transform our economy.
A short story
- P N Haksar wrote a letter to J R D Tata saying that businessmen were not doing enough for India’s development.
- He responded,
- I began my 55-year-old career as an angry young man because I couldn’t stomach foreign domination.
- I end it as an angry old man… because it breaks my heart to see the continuing miserable fate of the vast majority of our people.
- For much of this, I blame years of ill-conceived economic policies of our government.
- Instead of releasing energies and enterprises, the system of licenses and controls imposed on the private sector, combined with confiscatory personal taxation, not only discouraged and penalised honest free enterprise but encouraged, and brought success and wealth, to a new breed of bribers, tax evaders, and black marketeers.
Reforms in the economy
- Reforms over 35 years since J R D’s letter — delicensing, deregulation, Aadhaar, UPI, inflation targeting, Bankruptcy, GST, lower corporate taxes, etc. — are India’s strong foundations for a $5-trillion economy.
- Reaching a $10-trillion economy and a per capita income close to what China has today needed a new human capital regime for India’s 20 million civil servants.
A $10tn economy – what it would be like
- 80% of our labor force works outside farms.
- We have 200 cities with more than a million people (today – 52).
- Our cities meet the Marchetti constant (30-minute work commutes).
- Our government borrows at less than 4%.
- Our Aadhaar-linked land markets equalise rental yields and mortgage borrowing rates.
- PSU banks are governed by an independent holding company with no access to taxes.
- Our credit to GDP ratio rises to 100% (50% now) because our financial institutions know how to lend and recover money.
- Government school enrollment stops declining because learning outcomes improve.
- We have attracted China factory refugees that are going to Vietnam and Malaysia today.
- The global capital glut of negative interest rates chasing growth underwrites our investment needs.
- Fiscal discipline delivers low inflation.
- 50% of our college-going-age kids go to a diverse higher education system (25% in a homogenous system today).
- The policy encourages formal hiring. Our reformed social security system covers 60% of workers (today – 20%).
Problems in achieving this vision
- Regulatory cholesterol universe for employers – 57,000 compliances, 3,100 filings and 4,000 changes a year.
- Hostility to private enterprises comes from toxic civil service thought-worlds like prohibited till permitted, know-it-all rather than learn-it-all, too small for big things but too big for small things, poor and jerky law drafting, contempt for execution complexity, immaculate conception over continuous improvement, stereotyping the private sector as big companies rather than MSMEs, only using punishment to enforce policy rather than design-driven by domain specialisation, and not viewing wealth creators as national assets.
- Listed PSUs have destroyed $150 billion in value over the last decade.
- Cutting this regulatory cholesterol needs a climate change for civil servants.
- A new human capital regime starts with two projects each in six areas of structure, staffing, training, performance management, compensation, and culture.
- Project 1 involves rationalisation: We don’t need hundreds of PSUs and departments in 55 central ministries (Japan has 9; the US has 14, the UK has 21).
- Project 2 involves reverting the cylinder to a pyramid – 250+ people in Delhi with Secretary rank.
- Project 1 eliminates the sanctioned and actual strength gap because this is possible only with good people being overworked, non-urgent work neglected or squatting on unnecessary posts.
- Project 2 creates cognitive diversity and competition with 20% lateral entry.
- Project 1 involves restructuring how courses are chosen – demand rather than supply-driven, how course nominations choose people, how the courses are evaluated, and how course results integrate with performance management.
- Project 2 involves making learning continuous rather than episodic.
- Performance Management
- Project 1 involves a forced curve for appraisals of outstanding (20%), good (60%) and poor (20%).
- Project 2 involves replicating army thresholds where people retire at 50 if not shortlisted for promotion.
- Project 1 involves moving to a cost-to-government number by monetising benefits.
- Project 2 involves freezing salaries at the bottom (we pay too much) and raising them at the top (we pay too little).
- The tone from the top around corruption and differentiation. Too many civil service leaders overlook graft among subordinates or don’t question the processes that breed corruption.
- Leaders punish good performers by writing performance appraisals that don’t differentiate between gaddha (donkey) and ghoda (horse), giving top jobs by seniority, and allowing automatic promotions that create a pool of “promotable but not postable”.
- Differentiation needs fear of falling and hope of rising.
Cutting edge economics views development as a game of scrabble where vowels provided by the government enable the private sector to make more words and longer words. The current civil service fails to provide enough vowels; the steel frame has become a cage. For too long, the brain of the Indian state was not connected to its backbone. It’s time to connect the backbone to its hands and legs.