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.


My Blog said...

What matters to the rickshaw driver is that policemen do not take away a sixth of his daily earnings.

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