13 and 14 April 2013, New DelhiIndia Policy InstituteHyderabadIndian Institute ofPublic AdministrationDelhiGOVERNANCE REFO...
INTRODUCTION TO THECONFERENCESanjeev Sabhlok
Root cause of misgovernance:Policy/system design failure Policies are badly designed Policy frameworks are not used Sys...
We should not hesitate to adopt theworld’s best ideas World best practice governance frameworks Evidence-based economic/...
HOW WE - TOO – CAN GETWORLD CLASS GOVERNANCESanjeev Sabhlok, former IAS (1982 batch)
A bit about me IAS 1982 batch, PhD Economics from USA Taught at Lal Bahadur Shastri National Academy Resigned in Januar...
This talk is:A distillation of key learnings from over 30years of experience in the IAS and VictorianPublic ServiceGiven l...
Plan of my presentation Part 11) Theory of good governance2) India’s system compared with Australia’s3) Public administra...
1) THEORY OF GOVERNANCE
What’s our policy about policy? Think from the highest level first: what ispolicy and what should it consider? We need a...
Two main questions to ask What should a government do? Are there limits to what a government can do? How do we arrive a...
The “What” must be well thought out “Bad administration, to be sure, can destroy goodpolicy, but good administration can ...
This is what we wantGoal
This is what we getOurGoalBureaucrat(black box)…. by failing to think about the politician’sand bureaucrat’s incentivesBur...
Sequencing of my talk I will discuss the “How” first Public administration (delivery) reforms Then I will discuss the “...
A word re: Arthashastra
Arthashastra underpinned India’s pastsuccess For 12 out of the past 20 centuries India was theworld’s wealthiest, and 2nd...
Let’s put Arthashastra squarely into thecentre of public policy discourse Most analysts of Arthashastra have missed itspo...
Chanakya wanted a strong, minimalstate, with control over incentives
Two axes: liberty, incentivesLibertyIncentivesReminder: incentivesinclude disincentives!
Key dimension #1: Liberty Liberty is an end in itself. But also necessary for peopleto do their best Lao-Tse’s advice to...
India was much wiser in ancient timesकहावत जहााँ का िाजा हो व्यापािी वहााँ की प्रजा होभिखािी Government should not engag...
 The natural effort of every individual tobetter his own condition is so powerful, that itis alone, and without any assis...
 “Any restriction on liberty reduces thenumber of things tried and so reducesthe rate of progress”- H.B. Phillips (mathem...
123nTwo obstacles to freedomOpportunity(technicalfrontier)Governance mustenable liberty(social reform is not a government’...
Key dimension #2: Correct incentives Chanakya thoroughly understood incentives: Best talent in government High salaries...
The problem of government failure Policy makers typically focus on market failure But the real elephant in the room is g...
Understanding incentivesInstitutions (rules)IncentivesEndowmentLocal circumstances(beyond the control of the policy maker)...
Examples: Incentives explain behaviourDisposing personal rubbish The same Indians don’t throw rubbish on the roadside inS...
Incentives are at work 24-7We ask our politicians to lose crores of rupeesduring elections.Then we pay them very low salar...
Burying our head in sand won’t makeincentives disappearIncentives are at work even in our dreams!
Incentives are as powerful as aphysical forceGravity pulls downwards, hence water flows downhillIncentives drive human beh...
Example of the power of incentives I offer you Rs. 100 or Rs.200. Which will you pick? Rs.200 Always. Incentives may b...
Myth: that Indians are somehow“different” Apparently we have a natural tendency to becorrupt Not true Indians respond t...
China has moved toward incentivesand markets-based governance Teachers are dismissed in China if aclass’s academic result...
Results exactly as predictedHalf of Class 5 kids in India can’t read Class 2 texts
The incentive (principal-agent)problemAgency theoryCompany owners motivate managers through incentivecontracts so manager ...
Controlling bureaucrats is very hardCitizens, the masters, have to solve a TWO STAGEproblem: 1) First controlling represe...
Politicians’ interests are totallydifferent to ours Politician’s goal is to get re-elected He knows that citizens can’t ...
How we can force politicians to lookafter our interest Meet the participation constraint Partly fund elections by the st...
Bureaucrats’ interests are different toours, too“Lurking below each public servant is a full-fledged human beingwith predi...
Consider Chanakya’s wisdom re:incentive compatible wage "the highest salary paid in cash, excluding perquisites,was 48,00...
India’s bureaucracy: The currentsituation Salary is not high enough to: A) attract demonstrated high quality talent B) ...
Paying in “patriotism cash equivalent”is not always a good ideaMarket rate for a particular skillAustralia pays market rat...
Minimum conditions must be metPasteur: Milk must boil before bacteria dieParticipation constraintANDIncentive constraint m...
What about transparency? Can transparency (by itself) eliminate corruption? No. Easy for corrupt officials to provide “...
What about Lokpal? Can punishment (by itself) eliminate corruption? (egLokpal) No. Low possibility of detection: When 9...
Commonly advocated anti-corruptionsolutions can work after basics are met Transparency CAN work Lokpal CAN work Basic c...
Where will money to increase wagescome from? First, we must remember: “penny wise poundfoolish” If the top levels can be...
2) INDIA’S SYSTEM COMPAREDWITH AUSTRALIA’S SYSTEM
Flexible control over bureaucracy Bureaucracy is controlled by Acts of parliament Public Service Acts of 1902, 1922 and ...
Agile system. Empowers but demandstotal accountability Secretaries appointed by Prime Minister/Chief Minister Contractua...
Australian government doesn’t dabbleexcessively with the economy Extremely limited role of government inmanaging economic...
=> Starkly different governance! Superior management (including project management)skills Self-actualising organisationa...
Strong system for accountability KPIs and performance contracts for Secretaries KPIs flow into performance plans of lowe...
Organisational culture Blue culture on the"circumplex“ Self-actualising No one is called "Sir",only first names. Every...
Staff are expected to: show concern for the needs of others involve others in decisions affecting them resolve conflict...
Staff are not expected to: do things for the approval of others "go along" with others win against others accept goals...
Focus on world-best policy products Policy officers conduct world-class research Short, crisp, professional briefings fo...
Productivity tools extensively used. Andexperts/ academics consulted All documents dealt with electronically Key documen...
3) PUBLIC ADMINISTRATIONREFORMS FOR INDIA
Political incentive reforms As discussed: key reforms could include State funding of elections High salaries but no per...
Bureaucratic system reforms As discussed: Eliminate tenure Contractual appointments (Under Secretary and above) Salari...
But this is "not practical”!Good policy maker must design transition path.Eg. Following steps 0: Stop deputations to cent...
Transition contd. Month 9: Strategic plans Month 21: Implementation of strategic planscompleted New Public Administrati...
4) ECONOMIC POLICYREFORMS FOR INDIA
Chanakya’s insights, once again Chanakya does not prohibitanything Alcohol/ prostitution/ mostmeats He regulates it He...
India: yet another proof that economicfreedom works Freedom is increasing rapidly in India since 1990sMost sectors liber...
India’s output has responded rapidly tovery limited increase in freedomTable: Share of world output measured in terms of P...
Economic reforms needed Review and reduce unnecessary role of government Fiscal system reform Financial sector liberali...
5) REGULATORY POLICYREFORMS FOR INDIA
Need for optimal (just right)regulation Liberalisation ≠ deregulation We need regulation to prevent/ punish harmfuleffec...
Points to consider Policy must not be made in response to aparticular incidentIt must be evidence based (cost-benefit/st...
Regulatory Impact Statement Gatekeeping role, includesCost benefit testPublic consultation (transparency) Bad policy r...
Victoria’s independent gatekeepingmechanism Department prepares RIS Independent Commission assesses the RIS Minister si...
10 questions to eliminate bad policy1: What would happen without any role forgovernment2. Identify problem/s with the base...
10 questions to eliminate bad policy6. Strategic gaming test7. Government failure test8. Real experience test9. Cost benef...
Urgently needed regulatory reforms inIndia Legislate a mandatory requirement for RISfor any public policy/ significant pr...
Reducing red tape (costs of regulation)
Measuring regulatory costs Standard Cost Model (European) Regulatory Change Measurement method(Victorian) Reducing red ...
6) TRANSITION FROM CURRENTSYSTEM TO WORLD-BESTSYSTEM
Strategic plans and transitionalstrategy This is time to our homeworkThen good results will be certain In this conferen...
These goals of good governance arevery easy to achieve These are PROVEN methods These are consistent with the views of I...
We need to establish a ChanakyaSchool of Governance India has excellent technology, medical andmanagement schools. But n...
Federation of reformers recentlycreated At the National ReformSummit in Haridwar recently,a Sone Ki Chidiya Federationhas...
My presentation at Governance Reforms Conference, IIPA Delhi 13-14 April 2013
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My presentation at Governance Reforms Conference, IIPA Delhi 13-14 April 2013

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This slideshow summarises the systemic failures of India's governance system and points to solutions to address these systemic failures.

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My presentation at Governance Reforms Conference, IIPA Delhi 13-14 April 2013

  1. 1. 13 and 14 April 2013, New DelhiIndia Policy InstituteHyderabadIndian Institute ofPublic AdministrationDelhiGOVERNANCE REFORMSCONFERENCE
  2. 2. INTRODUCTION TO THECONFERENCESanjeev Sabhlok
  3. 3. Root cause of misgovernance:Policy/system design failure Policies are badly designed Policy frameworks are not used System’s incentives are flawed Inevitability of corruption Modern thinking (including Arthashastra) not used Politicians make policy on whimsy, not analysis Bureaucrats are totally unaccountable This Conference is about changing the system व्यवस्था परिवर्तन
  4. 4. We should not hesitate to adopt theworld’s best ideas World best practice governance frameworks Evidence-based economic/regulatory policy Public administration frameworks In 1970s/80s, the world discovered economicand regulatory reforms In the 1990s, the world discoveredgovernance reforms India has adopted neither
  5. 5. HOW WE - TOO – CAN GETWORLD CLASS GOVERNANCESanjeev Sabhlok, former IAS (1982 batch)
  6. 6. A bit about me IAS 1982 batch, PhD Economics from USA Taught at Lal Bahadur Shastri National Academy Resigned in January 2001 to reform India – from outside 15 years of reform work Preliminary work in February 1998 (India Policy Institute) December 2000: Moved to Australia after findingunresponsive bureaucracy/politicians/ citizens Joined National Executive of Swatantra Bharat Party (2004) Started Freedom Team of India (December 2007) Wrote Breaking Free of Nehru (2008) Organised National Reform Summit at Haridwar on 5-8April 2013
  7. 7. This talk is:A distillation of key learnings from over 30years of experience in the IAS and VictorianPublic ServiceGiven limitations of time I will focus only on keyframeworks (systems): Public administration system Economic policy system Regulatory policy system
  8. 8. Plan of my presentation Part 11) Theory of good governance2) India’s system compared with Australia’s3) Public administration reforms for India Part 24) Economic policy reforms for India5) Regulatory policy reforms for India6) Transition from India’s system to world-best system
  9. 9. 1) THEORY OF GOVERNANCE
  10. 10. What’s our policy about policy? Think from the highest level first: what ispolicy and what should it consider? We need a policy about policyFrameworks and systemsWithout good frameworks, bad policy isinevitable
  11. 11. Two main questions to ask What should a government do? Are there limits to what a government can do? How do we arrive at these limits (eg. net benefit test) How should it do it? How can a government comprising self-interestedpoliticians and bureaucrats do what we want it to do?(public choice theory)Policy that doesn’t consider both theseissues will be fundamentally flawed
  12. 12. The “What” must be well thought out “Bad administration, to be sure, can destroy goodpolicy, but good administration can never save badpolicy.”- Adlai E Stevenson JrThe “How” must also be well thought out Policy that is unable to pierce the veil of incentivesduring implementation is bad policyGood policy necessarily considersimplementation issues
  13. 13. This is what we wantGoal
  14. 14. This is what we getOurGoalBureaucrat(black box)…. by failing to think about the politician’sand bureaucrat’s incentivesBureaucrat’sgoal
  15. 15. Sequencing of my talk I will discuss the “How” first Public administration (delivery) reforms Then I will discuss the “What” Policy framework and gatekeeping Economic policy
  16. 16. A word re: Arthashastra
  17. 17. Arthashastra underpinned India’s pastsuccess For 12 out of the past 20 centuries India was theworld’s wealthiest, and 2nd wealthiest in six out ofthe remaining eight centuries Due to the public policy stance outlined in Arthashastra
  18. 18. Let’s put Arthashastra squarely into thecentre of public policy discourse Most analysts of Arthashastra have missed itspoint its insights are extremely modern we should read between the lines to understand whatChanakya is trying to tell us All about INCENTIVES(including disincentives)
  19. 19. Chanakya wanted a strong, minimalstate, with control over incentives
  20. 20. Two axes: liberty, incentivesLibertyIncentivesReminder: incentivesinclude disincentives!
  21. 21. Key dimension #1: Liberty Liberty is an end in itself. But also necessary for peopleto do their best Lao-Tse’s advice to the king: “Win the world by doingnothing. How do I know it is so? Through this: The moreprohibitions there are, the poorer the peoplebecome… The greater the number of statutes, thegreater the number of thieves and brigands.” “I love quietude and the people are righteous ofthemselves. I deal in no business and the people growrich by themselves.”
  22. 22. India was much wiser in ancient timesकहावत जहााँ का िाजा हो व्यापािी वहााँ की प्रजा होभिखािी Government should not engage inbusinessFree marketsFree enterprise
  23. 23.  The natural effort of every individual tobetter his own condition is so powerful, that itis alone, and without any assistance, not onlycapable of carrying on the society to wealthand prosperity, but of surmounting a hundredimpertinent obstructions with which the follyof human laws too often encumbers itsoperations.- Adam Smith 1776
  24. 24.  “Any restriction on liberty reduces thenumber of things tried and so reducesthe rate of progress”- H.B. Phillips (mathematician)
  25. 25. 123nTwo obstacles to freedomOpportunity(technicalfrontier)Governance mustenable liberty(social reform is not a government’s job)Ideasdon’tcome fromgovernmentsPeople create ideas, and wealthGrowth = f (freedom, opportunity)Innovationpushesout thefrontier2) Social control• interfering religious beliefs• science and critical thinkinginsufficiently valuedPeople innovatebetter if thegovernment getsout of their way1) GovernmentNanny, paternalistic state:• interfering policies and laws• “Food police”Injustice• contracts not enforced
  26. 26. Key dimension #2: Correct incentives Chanakya thoroughly understood incentives: Best talent in government High salaries for top officials and Ministers But vigorous checks/ audits (even spying) Instantaneous dismissal and severe punishment for non-performance/corruption Today we have the OPPOSITE incentives in India! The results achieved today are inevitableSingapore follows Chanakya’s principles and succeeds
  27. 27. The problem of government failure Policy makers typically focus on market failure But the real elephant in the room is governmentfailure “Power corrupts, absolute power corruptsabsolutely” Politicians lavishly spend taxpayers’ money Bureaucrats maximise their empire
  28. 28. Understanding incentivesInstitutions (rules)IncentivesEndowmentLocal circumstances(beyond the control of the policy maker)SystemCreatedby policymaker}
  29. 29. Examples: Incentives explain behaviourDisposing personal rubbish The same Indians don’t throw rubbish on the roadside inSingaporeTenure Without job tenure an IAS/IPS officer will focus on delivery,for fear of losing the jobCorruption Indians were incorruptible when British merchants first cameto India. (They were astonished at such integrity!) But today Indians are world-famous for corruption. Why?!
  30. 30. Incentives are at work 24-7We ask our politicians to lose crores of rupeesduring elections.Then we pay them very low salaries.Question: Will such people serve us or loot us?=> Conclusion: our system guarantees corruption. Chanakya would have understood But we don’t care to see the world scientifcally
  31. 31. Burying our head in sand won’t makeincentives disappearIncentives are at work even in our dreams!
  32. 32. Incentives are as powerful as aphysical forceGravity pulls downwards, hence water flows downhillIncentives drive human behaviour and almostentirely determine what someone will doBut incentives are difficult to analyse Invisible, complex, layered, and conditionalDespite this difficulty, we ignore incentives at our peril
  33. 33. Example of the power of incentives I offer you Rs. 100 or Rs.200. Which will you pick? Rs.200 Always. Incentives may be invisible but have REAL,PREDICTABLE EFFECTS Incentives need not only be economic But economic incentives usually overwhelm others
  34. 34. Myth: that Indians are somehow“different” Apparently we have a natural tendency to becorrupt Not true Indians respond to incentives EXACTLY as predicted Chankya predicted it Modern economics predicts it New public management predicts it
  35. 35. China has moved toward incentivesand markets-based governance Teachers are dismissed in China if aclass’s academic results are below parWhile in India some teachers get paid evenif they don’t ever go to school!Naturally China does better than OCED inPISA, India is at the bottom of the world
  36. 36. Results exactly as predictedHalf of Class 5 kids in India can’t read Class 2 texts
  37. 37. The incentive (principal-agent)problemAgency theoryCompany owners motivate managers through incentivecontracts so manager actions (which are unobserved)can be aligned to owners’ goals.Usually:1. Base salary (for participation) plus2. Performance pay (incentive compatible wage)Plus hire/fire instantly based on performance
  38. 38. Controlling bureaucrats is very hardCitizens, the masters, have to solve a TWO STAGEproblem: 1) First controlling representatives (politicians) 2) Second, how politicians can control bureaucratsCitizenHow tocontrol?How tocontrol?Black boxof incentivesBlack boxof incentivesLots of hidden actions & complex incentives!
  39. 39. Politicians’ interests are totallydifferent to ours Politician’s goal is to get re-elected He knows that citizens can’t agree on anything Impossibility theorem He can game the system by catering to a niche Median voter theorem Lobbying/ pandering (subsidies/loan waivers) In addition, he must necessarily be corrupt in India,it being a mandatory requirement of the Indianelectoral system
  40. 40. How we can force politicians to lookafter our interest Meet the participation constraint Partly fund elections by the state to reduce use of blackmoney and allow good people to contest Australia pays about $2 per valid vote cast High salary to attract good people into politics Pay incentive compatible wage Salary high enough to prevent incentives for corruption Link pay with performance Reduce tenure (from 5 to 3 years) to keep them on toesSingapore and Australia pay politicians well, thus attracting top talentand reducing incentives for corruption – Chanakya would have approved.
  41. 41. Bureaucrats’ interests are different toours, too“Lurking below each public servant is a full-fledged human beingwith predictable self-interested behaviour” (Sabhlok,BFN) His goal: to expand his empire (importance) Obstacles/ inefficiency/ symbols, not real workSolution: Meet participation constraint High salary to attract good people Incentive compatible wage Performance based reward/pay Tenure totally abolished at executive levels Stern punishment for underperformance/ corruption
  42. 42. Consider Chanakya’s wisdom re:incentive compatible wage "the highest salary paid in cash, excluding perquisites,was 48,000 panas a year and the lowest 60 panas ayear. The ratio of the highest salary to the lowest,was eight hundred to one.” (Balbir Sihag) If lowest salary is Rs.4000 per month, then highestshould be Rs. 32 lakh per month (or Rs.3.8 crores peryear)Even a top salary of Rs.1 crore will go a long way.But there must be ability to instantaneously fire.
  43. 43. India’s bureaucracy: The currentsituation Salary is not high enough to: A) attract demonstrated high quality talent B) prevent corruption Indeed, there are rewards for corruption No punishment for non-performance Tenure is particularly insidious Articles 310,311=> Our politicians can’t control bureaucrats
  44. 44. Paying in “patriotism cash equivalent”is not always a good ideaMarket rate for a particular skillAustralia pays market rate+ incentivesIndia pays 1/3rd market rate+ nationalismSacrifice“for thenation”Incentive toperform and behonest, else willlose job – andmoney!Incentive to bearrogant (doing“sacrifice” forcountry) andunaccountable
  45. 45. Minimum conditions must be metPasteur: Milk must boil before bacteria dieParticipation constraintANDIncentive constraint must be metTo kill incentivesfor corruption
  46. 46. What about transparency? Can transparency (by itself) eliminate corruption? No. Easy for corrupt officials to provide “transparent reasons”for awarding large government contract to bribe-giver We can have all the transparency we like, but the corruptwill find a way We must attack INCENTIVES, and must not PREACH Unless participation and incentive constraints havebeen met, other factors don’t have any effect
  47. 47. What about Lokpal? Can punishment (by itself) eliminate corruption? (egLokpal) No. Low possibility of detection: When 95 per cent are corrupt,chance of getting caught is small, so why worry? Risk premium on corruption: Lokpal will allow corruption “rates”to increase on due to increased risk of punishment Unless participation and incentive constraints havebeen met, other factors don’t have any effect
  48. 48. Commonly advocated anti-corruptionsolutions can work after basics are met Transparency CAN work Lokpal CAN work Basic conditions will make 95 per cent peoplehonest After that remaining 5 per cent corruption canbe eradicated by transparency and lokpal
  49. 49. Where will money to increase wagescome from? First, we must remember: “penny wise poundfoolish” If the top levels can become honest, the rest will follow Singapore PM is paid $2 million Government should stop doing things it shouldnot be doing in the first place That will give citizens the freedom to produce =>greater revenues
  50. 50. 2) INDIA’S SYSTEM COMPAREDWITH AUSTRALIA’S SYSTEM
  51. 51. Flexible control over bureaucracy Bureaucracy is controlled by Acts of parliament Public Service Acts of 1902, 1922 and 1999 In Victoria, recent Public Administration Act 2004 This, being flexible, allows continuous improvement
  52. 52. Agile system. Empowers but demandstotal accountability Secretaries appointed by Prime Minister/Chief Minister Contractual, with clearly defined KPIs Secretaries empowered to hire and fire other staff Hire and fire option with 4 months notice Secretary appoints Deputy Secretary who appoints Directors, etc. down the line Open market recruitment by application for each position Remuneration parity with private sector Contractual service at all executive levels Portability of employment contributions for retirement
  53. 53. Australian government doesn’t dabbleexcessively with the economy Extremely limited role of government inmanaging economic activity (in comparison withIndia) Almost no administered price, including in theutilities sectorTargeted subsidies to the poor Freely floating currency Very low duties (free trade) Almost no subsidies for any sector
  54. 54. => Starkly different governance! Superior management (including project management)skills Self-actualising organisational culture Strong performance management system Diverse background of government employees (mostwith private sector experience) Head of civil service often in mid-30s Good performers are rapidly promoted Extensive delegation of responsibility Free and frank policy advice Significant use of modern IT
  55. 55. Strong system for accountability KPIs and performance contracts for Secretaries KPIs flow into performance plans of lower officials All executives are fully accountable for contractedresults Independent review of Secretaries’ performancePerformance bonus contingent on performance Not uncommon for executives to be demoted ordismissed for non-performance
  56. 56. Organisational culture Blue culture on the"circumplex“ Self-actualising No one is called "Sir",only first names. Everyone equal as aperson Indias culture is very redin comparison!(Aggressive/Defensive)
  57. 57. Staff are expected to: show concern for the needs of others involve others in decisions affecting them resolve conflicts constructively be supportive of others work to achieve self-set goals help others to grow and develop point out flaws (ie not just accept low standards) be a good listener give positive rewards to others
  58. 58. Staff are not expected to: do things for the approval of others "go along" with others win against others accept goals without questioning them be predictable never challenge superiors do what is expected oppose new ideas
  59. 59. Focus on world-best policy products Policy officers conduct world-class research Short, crisp, professional briefings for Ministers No “peons”/clerks Officers organise everything themselves Rapid turnaround of documents/emails Independent Board (with non-departmentaldirectors) provides high quality corporategovernance
  60. 60. Productivity tools extensively used. Andexperts/ academics consulted All documents dealt with electronically Key documents auto-scanned at time of receipt TRIM to store documents including emails Govdex to share confidential documents across Federal andState governments Telepresence (Huge TV screens) No unnecessary travel for meetings Constant interaction with OECD, other internationaljurisdictions and world-best academics Eg. Centre for Market Design in University of Melbourne
  61. 61. 3) PUBLIC ADMINISTRATIONREFORMS FOR INDIA
  62. 62. Political incentive reforms As discussed: key reforms could include State funding of elections High salaries but no perks Performance bonus based on increased GDP reduced corruption, etc Lokpal to deal primarily with corrupt Ministers
  63. 63. Bureaucratic system reforms As discussed: Eliminate tenure Contractual appointments (Under Secretary and above) Salaries comparable with private sector Performance pay related to outcome Ability to dismiss without notice for non-performance(with 4 months salary in lieu) Reduce clerical staff and hire policy experts
  64. 64. But this is "not practical”!Good policy maker must design transition path.Eg. Following steps 0: Stop deputations to centre for two years Ask an HR company to advertise all Secretarypositions Month 3: Prime Minister and Ministers appoint NewSecretaries on 2-year contract based on merit Secretaries not successful in getting these job sent to cadre New Secretaries then advertise Addl and Jt Secretarypositions and hire in next three months Month 6: Those not successful return to cadre
  65. 65. Transition contd. Month 9: Strategic plans Month 21: Implementation of strategic planscompleted New Public Administration Act Any relevant Constitutional amendment By end of 2nd year, full transition to be rolledout in the Centre Similar transition rolled out in the States Within three years civil service would be fullyrestructured and become agile/efficient
  66. 66. 4) ECONOMIC POLICYREFORMS FOR INDIA
  67. 67. Chanakya’s insights, once again Chanakya does not prohibitanything Alcohol/ prostitution/ mostmeats He regulates it He promotes trade, particularlyimports Open economy is the key toprosperityLiberalisation does notequal deregulation
  68. 68. India: yet another proof that economicfreedom works Freedom is increasing rapidly in India since 1990sMost sectors liberalisedE.g. mobile phonesSome sectors are free because the governmentis basically defunct in those areasOverall, we have very low levels of freedom => Need to liberalise most sectorsEducationHealth
  69. 69. India’s output has responded rapidly tovery limited increase in freedomTable: Share of world output measured in terms of PPPCountry 1980 1990 2000 2010 2016China 2.2 3.9 7.1 13.6 18.0United States 24.7 24.7 23.6 19.7 17.8India 2.5 3.2 3.7 5.4 6.6Japan 8.7 9.9 7.6 5.8 5.0Germany 6.7 6.1 5.1 4.0 3.4Russia 0.0 0.0 2.7 3.0 2.9Brazil 3.9 3.3 2.9 2.9 2.9UnitedKingdom4.3 4.1 3.6 2.9 2.6Australia 1.3 1.3 1.3 1.2 1.1
  70. 70. Economic reforms needed Review and reduce unnecessary role of government Fiscal system reform Financial sector liberalisation (with prudentialregulation) Privatisation of utilities and defence production wherepossible – with regulatory oversight Open economy (trade) Urban/regional planning reforms to allow markets tosignal demand and supply Infrastructure reforms (PPP etc.)
  71. 71. 5) REGULATORY POLICYREFORMS FOR INDIA
  72. 72. Need for optimal (just right)regulation Liberalisation ≠ deregulation We need regulation to prevent/ punish harmfuleffects But no more than that When social marginal cost equals social marginalbenefit (SMC=SMB – equalised for ALL policies) Can be assessed through a cost-benefit analysis(CBA)Many challenges in CBA but without such test weget truly bad policy
  73. 73. Points to consider Policy must not be made in response to aparticular incidentIt must be evidence based (cost-benefit/statistical analysis)E.g. cost of saving a life must be equalisedacross all interventions
  74. 74. Regulatory Impact Statement Gatekeeping role, includesCost benefit testPublic consultation (transparency) Bad policy reducedThe basic idea applies to all projects (eg.infrastructure/ public private partnerships)But India doesn’t have gatekeeping processes yet
  75. 75. Victoria’s independent gatekeepingmechanism Department prepares RIS Independent Commission assesses the RIS Minister signs the RIS and publishes forconsultation The Treasury department advices Cabinet(where appropriate) Parliamentary Committee scrutinises RIS forintegrity and diligence
  76. 76. 10 questions to eliminate bad policy1: What would happen without any role forgovernment2. Identify problem/s with the base case and explainwhy these are problems3. First principles test (should government intervene atall)4. What can government do about the problem/s?5. Freedom test
  77. 77. 10 questions to eliminate bad policy6. Strategic gaming test7. Government failure test8. Real experience test9. Cost benefit test10. Transition path(details in Victorian Guide to Regulation/ policycompetition held by Freedom Team of India)
  78. 78. Urgently needed regulatory reforms inIndia Legislate a mandatory requirement for RISfor any public policy/ significant project Mandate the 10 point process as the basis for RIS Create independent Commission to assessadequacy of RISs Ensure public consultation so the truth emerges
  79. 79. Reducing red tape (costs of regulation)
  80. 80. Measuring regulatory costs Standard Cost Model (European) Regulatory Change Measurement method(Victorian) Reducing red tape provides significantbenefits businesses and the community
  81. 81. 6) TRANSITION FROM CURRENTSYSTEM TO WORLD-BESTSYSTEM
  82. 82. Strategic plans and transitionalstrategy This is time to our homeworkThen good results will be certain In this conference we will specify eachstep of what a good governmentshould do in its first six monthsTransitional path
  83. 83. These goals of good governance arevery easy to achieve These are PROVEN methods These are consistent with the views of India’sgreatest economist - Chanakya Let’s remember that Indians are the same as otherhumans Same species. No difference in behaviour.
  84. 84. We need to establish a ChanakyaSchool of Governance India has excellent technology, medical andmanagement schools. But not one good school of governance (Note: Governance goes beyond publicadministration) We need many excellent schools of governance Suggested: Let the private sector in India establish aworld class Chanakya School of Governance
  85. 85. Federation of reformers recentlycreated At the National ReformSummit in Haridwar recently,a Sone Ki Chidiya Federationhas been created forreformers Vision Agenda for Change Let this Conference createStrategic Plans for reform

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