Politicians make policy, bureaucrats implement them. Trust and harmony between the two can produce amazing results. If trust and harmony decline, so do decision-making and economic performance.
Bureaucrats can function brilliantly if they get clear signals from their political bosses, and assurance that being decisive (which typically includes short-cuts through a jungle of rules) will further their careers. This explains success in states as varied as Bihar, Gujarat, Madhya Pradesh, and Chhattisgarh. Strong chief ministers with clear policies empower bureaucrats to implement those approaches.
But the same bureaucrats freeze into inaction when they receive mixed signals, as has been the case in New Delhi. The law today makes bureaucrats liable for corrupt outcomes even if there is no evidence of their benefiting personally. If political protection is not guaranteed, they stop moving files. Finance minister Chidambaram says, rightly, that India’s problem is implementation paralysis more than policy paralysis.
The bureaucracy has gone through four phases since 1991. In 1991-2004, bureaucrats got the signal “what do we liberalize next?” In 2004-08, this changed to “don’t liberalize more.” After 2009, the signal was “what do we regulate next?” After the anti-corruption anger in 2012, this changed to “run for cover; nobody can guarantee you safety”. This explains the rise and fall of the economy. A fifth phase is needed to lift the economy again.
When economic reforms began in 1991, bureaucrats questioned its sustainability. Many suspected that the reforms were ploys to satisfy the IMF, and might be reversed soon. Opposition parties swore to reverse the reforms if they came to power. But soon GDP growth took off, averaging a record 7.5% in 1994-97. This made the reforms irreversible. Narasimha Rao was followed by Gowda, Gujral and Vajpayee, but the direction of reform continued. Every civil servant was encouraged to ask, “What do we liberalize next?”
This phase ended in 2004. Sonia Gandhi came to power. Far from viewing liberalization as a major success, she portrayed India as tarnished, not shining, under Vajpayee. Her focus shifted from liberalization to welfarism. Bureaucrats got the signal, “Don’t liberalize more”. Thanks to earlier reforms and global buoyancy, GDP growth soared to a record 8.5%/year, but Sonia de-emphasized this.
Next came the financial crash of 2008-09 widely blamed on excessive deregulation and corporate greed. The world over, an outcry began for stiffer regulation and more controls. This had strong echoes in India too. Liberalization was seen as having gone too far, even though it was half-baked in India compared with the Asian tigers.
Bureaucrats struggling to cope with a plethora of old regulations faced an avalanche of new ones. The most onerous related to the environment, forests, tribal areas, and land acquisition. These were well intentioned, but created a new licence-permit raj. Honest business became impossible in several areas, notably natural resources and land. Dishonest business was still possible through kickbacks. However, this eventually caused popular outrage, led by the CAG, courts and Anna Hazare. The courts went after not only corrupt politicians but also bureaucrats, including those that had retired.
This guaranteed bureaucratic paralysis. The system imposes no penalty on those sitting on files, but penalizes those involved in decisions later denounced by the courts or CAG. Earlier, ministers guaranteed political protection to bureaucrats following their orders. But after the new anti-corruption mood, and activist courts, political guarantees become impossible. The new signal to bureaucrats was, “Run for cover.”
Chidambaram and Manmohan Singh endeavoured mightily to revitalize decision-making since late 2012. They devised the Cabinet Committee on Investment to spread the responsibility for decisions among relevant ministries, reducing risks for any one minister or bureaucrat. But though they cleared a mammoth Rs 6 lakh crore worth of projects, there is still no boom in capital goods or construction. Implementation paralysis continues because bureaucrats still find political signals mixed, and political protection inadequate.
By itself, the May election will not be a game changer. A fragile coalition won’t have enough unity of purpose to provide clear signals to the bureaucracy. Ministers in a fragile coalition may seek quick money in the short time available.
A new government with a substantial majority and clear policies is required to send bureaucrats the signal: “Fast implementation is safe, will be rewarded.” The new government must be seen focusing on economic revival, not black money: that itself will curb court activism. It must protect bureaucrats not guilty of personal gain in scams. It must promote decisive bureaucrats and sideline ditherers. That will end implementation paralysis, and revive fast growth.