Bringing Competition to Bureaucracy

Arvind Panagariya

 As the Indian economy modernises and globalises, policy-making grows more complex. Externally, we must negotiate new trade agreements and be vigilant to possible financial turmoil. Internally, we must move ahead with reforms and institute appropriate regulatory regimes. All this requires specialised knowledge on the part of the policy-maker.

  The popular belief is that the making of policy is the prerogative of the politician while the bureaucrat merely implements it. This is a myth. Under the parliamentary democracy in which we live, ministers must be chosen primarily from amongst the Members of Parliament. As career politicians, these latter have a broad understanding of the interests and needs of people but not the detailed and specialised knowledge necessary to formulate policy in today’s complex world. The burden necessarily falls on the shoulders of top-level bureaucrats.

  But what if top bureaucrats themselves lack these skills? We then run the risk of blind leading the blind. Two features of the IAS and IFS, which virtually monopolise the top bureaucratic jobs, make this risk quite real.

  First, virtually the only way to join these services is to join them young: one must take the entrance examination between ages 21 and 28. Even within this short window, he must be closer to the lower limit if he wants to reach the top. Though the entry passage is extremely narrow, allowing only one out of each 500 or more applicants to pass, once in, the steel armour of the service protects officers much the same way that strict licensing protected successful entrants to the industry prior to 1991. There is neither the threat of competition from outside nor the fear of dismissal from within.

  Second, the emphasis of the service is almost exclusively on general administrative skills. The system of entry at an early age through competitive examinations, coupled with no lateral entry, already makes general intellectual achievement a key to success. But in addition, the internal culture is outright hostile to the acquisition of specialised skills. The younger members of the service, who happen to acquire these skills, are quickly told by their seniors that they remain fully replaceable by officers without the skills.

  This approach perhaps made sense in the immediate post-Independence era, when the decision was made to continue to pattern the Indian civil service after the British civil service. The leader at the helm, Pundit Nehru, was himself a visionary with a thorough grasp of economic policy.

  Moreover, the structure of the economy was relatively simple.  All Nehru needed for the formulation of economic policy was a small team of technicians in the Planning Commission, which could work out the details of five-year plans around his economic philosophy and vision. The task of bureaucracy was truly limited to the implementation of these plans.

  But today we live in a changed world. There are no Nehrus at the helm. More importantly, our top bureaucrats must engage in policy dialogue with their counterparts in the United States, negotiate trade agreements under the auspices of the WTO, and formulate complex regulatory policies in sectors such as telecommunications, power, banking and insurance.  This requires deep in-house understanding of the issues. The appointment of expert committees is not sufficient since someone within the bureaucracy must ultimately assess their recommendations.

  The absence of bureaucrats with specialised skills in India contrasts sharply with the active role played by them in the United States, Europe and Latin America. In these regions, economists, lawyers, bankers and financial experts move freely between the academia, business and think tanks on the one hand and bureaucracy on the other.

  In the United States, individuals with the relevant professional expertise hold approximately 2000 top bureaucratic positions, permitted to be filled by presidential nomination. This is on top of the fact that, given the presidential form of government, the US President is free to bring leading experts directly into the Cabinet. To give just one example, Lawrence Summers, the current Treasury Secretary (i.e., finance minister) is the top economist of his generation and a former Harvard Professor.

  Given that our ministers must generally be career politicians, there is an urgent need to open up the top bureaucratic jobs in the central government to outsiders.  Positions at the level of joint secretary and above should be filled by fully open competition. To ensure fairness in the process, the UPSC can be entrusted with the task of administering the selections.  When outside individuals are chosen, they may be brought on fixed terms of a suitable length. Given the limited availability of outside specialists at present, the IAS officers will likely continue to fill the majority of these positions. But the principle of competition must be established and the message that specialised skills are valued sent.

  In the area of trade negotiations, our own past experience underlines the urgent need for bringing individuals with a deeper understanding of the art of negotiation into the process.

 In the past decade, every United States Trade Representatives has been a top trade lawyer. This is not surprising since lawyers are known to earn their living by negotiating on behalf of their clients. While we may lack such lawyers today, we must pave the way for their future emergence.  In the meantime, we should bring individuals of extraordinary skills and knowledge such as Abid Hussain to lead us in the negotiations.

  It goes without saying that this column is not about the large number of civil servants, including trade negotiators, who have served India with great distinction.  Instead, it is about those bureaucrats who become ``knowledge proof’’ inside the steel armour they live and about the difference individuals such as Montek Ahulwalia and Vijay Kelkar, both first-rate economists who joined the bureaucracy from outside, can make to the process of economic reforms at home and India’s image abroad.

(The author thanks Praveen Kumar for extremely insightful comments and discussions.)

Economic Times, September  27 2000