Monday, August 23, 2004


Times of India, Aug 22, 2004

I met a dear old friend last week. She had gone abroad as a young girl, and there made a big success as an educator. Twenty years later she returned, full of idealism, and invested her life's savings to start a school. I later heard that her school had become truly outstanding. So, when we met I had expected the scent of success; instead, I saw a woman with a broken heart.She confessed she had needed 11 permissions to start her school, and each one required a bribe. Almost 10 per cent of her savings went to pay bribes when she began, and 5 per cent of her running budget goes into graft each year. She shivers each time she faces an official, and something dies inside her when she has to pay off.

This is why I was saddened by the Supreme Court's decision requiring Delhi's government to regulate private school fees, further increasing the bureaucrats' hold over schools. I am an unabashed admirer of our highest Court, which has courageously upheld our wonderful Constitution even in our darkest days. But honourable justices are also fallible and in this case they have made a terrible mistake in compromising the autonomy of schools by reversing the TMA Pai judgement. Ironically, industry won freedom from Licence Raj in 1991, but it flourishes in education. The Court is right, however, in pronouncing that schools that were given cheap land and had agreed to provide free seats to the poor must live up to that contract.

There are sharks in education as well, and we need sensible governance to catch the guilty without harassing the innocent. But price controls do not work - every country has learned the lesson the hard way. It is one of the reasons why socialism failed and communism collapsed. Only in the case of natural monopolies are price controls needed. For the rest, competition is the best price control. Private schools are not natural monopolies and parents do have a choice. Our objective should be to increase that choice. Since demand for good schools greatly exceeds their supply, fees will rise naturally. If 100 children want to study and there are only 80 seats in a school, lowering school fees will not achieve justice. You will always disappoint 20 students. But if another good school comes up, everyone will find a place and fees will not rise. The answer then is to increase the supply of good schools.

Why don't more good schools come up? It's not easy to start a school. The bureaucracy puts huge obstacles in the way. According to the Centre for Civil Society, it takes 14 licenses and permits to open a school in Delhi, and each approval comes with a price. This naturally discourages honest, idealistic, and philanthropic persons, who are often the ones who start schools. Although my friend did not give up, many do. And this is a great tragedy, for it is products of these very schools that have succeeded on the world stage and made us proud.

The quickest way to increase the supply of good schools is to reform our government schools. They are so rotten that even the poor are abandoning them. Some think that it is impossible to reform state schools. They should look at our excellent Central and Navodaya schools. So, instead of ruining private schools, our babus should do their own job and fix their own schools. Meanwhile, who will wipe away the tears of my dear friend and of the million Indians that daily fall victim to our callous and arrogant bureaucracy?

Tuesday, August 17, 2004

Bureaucracy Crippling India

Financial Times, August 17, 2004

On Sunday, Manmohan Singh, India's earnest new prime minister, declared to the nation that his top priority was to change the way government runs and improve the provision of services to the poor. This happy focus on governance is one of the unexpected consequences of the change in government in New Delhi.

For the past two months, the left has smugly spread the myth that the election verdict was a revolt of the poor against the rich. Nothing could be further from the truth. It was, quite simply, a vote against day-to-day failures of governance. Local governments in India are so eaten away by corruption and mismanagement that they cannot provide basic services to the poor such as decent schools, primary health centres and drinking water.

My cousin says that her tap began to run dry this summer just as she went in for a bath, and that is when she decided to switch her vote. What matters to the rickshaw driver is that policemen do not take away a sixth of his daily earnings. The farmer wants a clear title to his land without having to bribe the village headman. His wife wants the doctor to be there when she takes her sick child to the health centre. She also wants the teacher to show up at her village school.

This is how government touches ordinary peoples' lives, and the sobering lesson from India's dramatic election result is that decent economic growth is not enough in a democracy. India's economy had grown at 8.1 per cent in 2003 - 0.3 per cent in the last quarter, surpassing China for the first time - and, not surprisingly, the ruling National Democratic Alliance, led by the nationalist Bharatiya Janata party (BJP), tried to capitalise on this feel-good factor with its "India Shining" advertising campaign. But it failed to win the election.

India's gross domestic product has been growing at close to a 6 per cent real rate for 23 years, making it one of the fastest-expanding major economies in the world. While this is slower than China, it is almost double India's growth rate of the preceding 30 years, and double the rate at which the west grew during the Industrial Revolution. More recently, India's population growth has also begun to slow; in 1998 it was down to 1.6 per cent, compared to a historic 2.2 per cent annual growth rate. And literacy has begun to climb - it reached 65 per cent in 2000 compared to 52 per cent in 1990. Almost 190m Indians have risen out of destitution since 1980 and the middle class has more than tripled to around 250m. Had India's GDP growth continued to chug along at the pre-1980 rate, Indian incomes would only have reached America's present per-capita income level by 2250; at the current rate, they will reach today's American income levels by 2066 - 184 years earlier.

The amazing thing is that all this growth is happening alongside the most appalling governance. In the midst of a booming private economy, Indians despair over the simplest public goods. The contrast between power and telecommunications is obvious to everyone. After a successful reform programme, we are in the middle of a telecoms revolution that is as profound as China's. The number of telephones has increased from 5m in 1990 to 75m and is growing by 2m a month. But power remains a "public good", as reforms have failed, and people whine about daily power cuts applied by the state monopolies.

No single institution has disappointed us more than our bureaucracy. When we were young we bought the cruel myth of the "steel frame" - a stable system that would provide continuity. We were told that Britain was not as well-governed as India because it did not have the Indian Civil Service. Today our bureaucracy has become the single biggest obstacle to development. Indians think of their bureaucrats as self-serving, obstructive, and corrupt. Instead of shepherding through economic reforms, they are responsible for blocking them.

In the 1950s, the idealistic Jawaharlal Nehru, India's first prime minister, wanted a regulatory framework for his "mixed economy", but instead, in the holy names of socialism, the bureaucrats created a thousand controls and killed our industrial revolution at birth. In my 30 years in business I did not meet a single bureaucrat who really understood my business, yet each had the power to ruin it. In the end, ourfailures have been due less to ideology and more to poor management.

Why have civil servants let us down so badly? Why do employees of India's central, state, and local governments not do their jobs? Many Indians are convinced that lifetime employment is the reason. Labour laws protect them, so they are no longer accountable. Yet we have excellent examples of good execution right under our noses - the building of the Delhi Metro, or the exemplary project management for the fast expanding National Highways system, or the running of the muncipalities of Surat and Thane. These may be exceptions, but they prove that it can be done.

Manmohan Singh believes the answer lies in sweeping administrative reform. Perhaps, he should look to Britain, where we are told 40 per cent fewer people work in the government than in 1979, and that this has not only saved more than GBP 1bn a year but improved governance. He cannot easily cut down our government, but he can certainly orient it more towards results and make it more responsive to citizens. Cynical Indians, however, have heard this song before. They think the bureaucracy is too clever and will sabotage his efforts, as it has done every time such reform has been attempted in the past 50 years.

Sunday, August 08, 2004


Times of India, Aug 7, 2004

One of the better things to come from this new government is a welcome focus on governance. The Left's strident threat to raise government spending on poverty and social programmes so terrified everyone — raising the spectre of blowing away the nation's hard earned savings — that our sensible prime minister quickly responded. In his first address to the nation he declared that his top priority is to change the way government runs. He followed this up with a strong letter to the CMs urging them to improve the delivery of services to the poor. Next, he got his cabinet secretary working on key administrative reforms to improve implementation by the bureaucracy.

Manmohan Singh is aware that eliminating unwanted laws or simplifying them is a powerful way to improve governance. Ten years ago when he was finance minister, he set up a group under Bibek Debroy precisely to examine this. The group made an exhaustive study of central laws and concluded that 1,500 out of 3,500 laws were obsolete. If they were scrapped or significantly modified the citizen's life would improve. Known as Project LARGE, the group brought out 30 reports and seven books that Allied published between 1994 and 1998. Arun Jaitley, as law minister, scrapped 350 of these laws. Now is the time, Dr Manmohan Singh, to follow through with the good work you began.

Although our PM thinks that most delivery problems are in the states, there are plenty at the centre too, and I shall illustrate with two examples. There is a Protector of Emigrants, an office created in the 1980s when Indians began working in large numbers in the Middle East. Meant to protect our workers from being exploited, it has become in reality a paper barrier of grief for poor Indians going abroad. Obtaining the prized ECNR stamp (Emigrant Check Not Required) on the passport is as difficult as getting a passport, and a poor worker is forced to fill the pockets of touts and corrupt officials. Graduates have little difficulty in getting the stamp, and it is now planned to exempt those who have passed high school (10+2). But why not get rid of it completely? The law never made sense — when millions work in miserable conditions at home, why should the government set standards in which Indians work abroad? The law could not prevent the Malta boat tragedy, nor stop Indian mercenaries fighting in Iraq. If the PM scraps the law, he will bring joy to many grateful Indians who want to work overseas, including his fellow Sikhs in the districts of Punjab.

A second example is a law that harasses thousands of idealistic young people engaged in volunteer work. To receive funds from abroad, charity groups and NGOs need clearance under Foreign Contributions Regulations Act (FCRA), which was enacted during the Emergency in 1976 by Indira Gandhi to stop foreign money going to the opposition, especially to Jayaprakash Narayan's movement. Today, the FCRA is a paper barrier used by bureaucrats mainly to extract bribes. It has not stopped a single terrorist from getting foreign funds. Isn't it time we abolished FCRA in the same spirit as we scrapped FERA? The liberalisation of controls will give a huge fillip to philanthropy in India and improve the lives of voluntary workers and the poor who benefit from their work.These two examples illustrate the real task of government. This is what the BJP should reflect upon in its chintan baithaks; this is what the Leftists should rant about on the tube; this is what will reduce corruption; and this is what will win elections.