Thoughts on economics and liberty

What Would I Do If I Became India’s Prime Minister? #3

The Freedom Agenda for India

First of all, we should be very reluctant to dismantle anything related to governance without fully understanding its impacts. For example, we should be extremely loathe to jeopardize our already weak justice and police systems. Being therefore wary of reducing any of the strengths we have built so far, my objective in this blueprint is to develop a constructive story which incrementally, but systematically, rebuilds, and then strengthens, the pillars of liberty in India. It is like re-building a road in small sections without disturbing the flow of the usual traffic.

To begin with, each of ‘my’ Ministers would be required to sign and publish a Ministerial Portfolio Contract with India upon being sworn in. These contracts, based on the party’s blueprint, would have been designed prior to the elections. The contracts would list the deliverables for which the Minister would be responsible in the first year. At the end of each year, Ministers would report publicly on their achievements. If a Minister fails to deliver upon significant commitments, he or she would relinquish his or her position and hand over to a second-in-command who would have been groomed for the job as part of the contract.

Raising Resources

Advancing freedom calls for a strong government capable of providing us with security, justice, law and order, and requisite social and physical infrastructure, to be paid for collectively by citizens through taxes. We also need our government to be efficient, i.e. to be able to maximize the benefits from each rupee it spends. Finally, we need the government to be effective, i.e. the products and services it delivers should be first-rate and achieve their intended objectives.
These three requirements for a government are very stringent and need appropriate resourcing and expertise. Meeting these won’t come cheaply. A cheap government is guaranteed to be ineffective since quality will become its first casualty. But today India has a cheap government. Only a little over 1/6th of our GDP[i] is spent on services provided by government, with at least a quarter of this being sucked out by corruption; so Indian governance runs on 1/8th of our GDP. This share of GDP is less than one-third of what most free countries spend. In this manner, by spreading thinly a very small amount of money over a very large number of public servants and a vast array of services, the quality of each service provided by our government is mediocre, even discounting corruption. There is no point in delivering services in a mediocre manner. Mediocre delivery also fails to include adequate checks on accountability. As a result, the tentacles of corruption are able to slither into every nook and crevice of the government.
We need the effective and high quality delivery of a few, well chosen services. My government will therefore not run thousands of socialist services and low performing welfare ‘programmes’. What it does choose to provide, though, will be of a first-rate, world-class standard. My government will provide the highest level of freedom practicable (justice, and law and order), and selected social and physical infrastructure, but only at market cost.
But even after cutting down frivolous socialist programmes, I expect that in the first two and a half years, when many such programmes will be phased out, and core focus rebuilt, my government’s expenses will increase significantly. I also expect tax revenues to lag significantly since the revenue system will need a vast amount of restructuring. Therefore, innovative solutions, compatible with freedom, will be found to tide over the funds constraints of the first two to three years. For those interested I have detailed some solutions to overcome this funds shortfall in the Online Notes.

Reforming Public Finance

Having set things in place to ensure that sufficient revenues are available for its first three years, public finance reforms will be given urgent attention. It is important to increase the tax base in India to a level that permits its governments to provide high-quality services. The basis of our taxes is our social contract, or Constitution, founded on an agreement between real people to pay taxes in lieu of services received. Public funds will therefore be raised by asking each real individual who is able to, to pay for the services the country provides that individual. Companies or associations of people will not be taxed in the longer term. Details of these reforms are provided in the Online Notes.

Building Capability to Govern

Most of this chapter deals with fixing our poor governance which is our Achilles’ heel. The reforms under this section are intended to attract Level 4 or 5 leaders into the political and bureaucratic wings of the government, and to develop them from within.

Enabling Public Servants to Represent People

Some honest members of India’s civil services who have been seeking knowledge actively throughout their life are very well-placed to bridge the divide between socialism and capitalism in India and to become initiators of change. Their knowledge of our operating environment as well as policy options available under a regime of freedom could prove invaluable to India. Public servants will therefore be permitted to resign to contest elections and to return to their earlier positions within two months of the declaration of election results should they be unsuccessful. This reform will improve the quality of the candidate pool in subsequent elections; particularly at the state levels.

Appointments of Cabinet Secretary and Ministerial Staff

The ball of bureaucratic accountability will be set rolling by reducing the current exclusive reliance on the bureaucracy for policy advice and implementation. To signal this change the Cabinet Secretary will no longer be a public service position. This will mark the divide between political representatives and the bureaucracy, between the agent and sub-agent. This position will henceforth be held by an MP in the rank of Minister of State without voting rights in the Cabinet. The incumbent public service Cabinet Secretary will be offered a redundancy package; or, alternatively, reverted to his or her state cadre. Ministers will also be empowered to appoint a small team of political ministerial advisers on short-term contracts which will run concurrently to the Ministers’ appointments.


Compensation for Peoples’ Representatives

Being committed to a squeaky clean government, I cannot afford the luxury of Cabinet colleagues being paid poorly. As an interim measure, my Cabinet will significantly increase the salary of members of Parliament. State Governments will also be funded for similar increases for their assemblies and councils. The monthly wage of MPs and MLAs would go up from the current Rs 33,000 to, say, Rs 3,50,000, with proportionate increases for Ministers. There will also be an annual adjustment based on the cost of living. Simultaneously, all perquisites and indirect benefits will be abolished.

A system of performance bonuses for all MPs and MLAs will be introduced:
  • For every 1 per cent increase in per capita GDP growth beyond 5 per cent per annum, all our representatives will get a one-off 5 per cent bonus.
  • For every 1 per cent permanent reduction – defined as a reduction sustained for two years – in the number of people below the poverty line, MPs and MLAs will get a permanent 1 per cent increase in their base salary. Once the negative income tax system is fully established, the entire reduction in poverty will be incorporated permanently into the base salary.
  • For every ten ranks that India rises on a sustained basis of two years in Transparency International rankings, there will be a 5 per cent one-off bonus.
  • There will be a permanent 20 per cent increase on base salary upon India’s becoming the world’s least corrupt country for two years in a row.
  • The sum of these bonuses will be limited to a total of 50 per cent of the base salary in any given year.
A virtuous cycle of morality will thus be established which will not only eliminate poverty but overcome the vicious cycle of corruption established by Nehruvian socialism. Legislation will also be introduced to create a genuinely independent Political Representative Incentives Commission charged with research on, and making recommendations on the following:
  • a compensation mechanism for peoples’ representatives that will eliminate all reasonably foreseeable incentives for corruption, or will otherwise promote the freedom of citizens; and
  • any matter related to the mechanisms of political representation, such as electoral laws.
The Commission would consult widely with the community and look at international best practice. The recommendations of the Commission, made at its sole discretion and whenever it considers fit, would bind the public exchequer, i.e. there will be no voting on its recommendations. This will eliminate the dilemma faced by political representatives who find the public or media unsupportive when they vote for an increase in their own salaries. Such lack of public support creates strong incentives for subterfuge through a host of ‘perquisites’ and underhand dealings. The independent commission will bring sanity into a matter as fundamental and important as this.

High Priority Electoral Reform

Interim electoral reforms based on the arguments outlined in Chapter 4 would be introduced in Parliament; things such as:
  • repeal of the requirement in the Representation of the People Act for Indian political parties to swear allegiance to socialism;
  • removal of limits on political fund raising and expenditures subject to stringent disclosure. These disclosure requirements will include third party audits and audit by the Election Commission. There would be penalties of up to Rs 10 crores and jail terms of up to three year for failures to accurately report on and declare all receipts and expenditures related to political purposes. Penalties for making unauthorized political expenditures on behalf of another person would be increased to Rs1 crore along with a jail term of up to one year;
  • state funding of elections (being retrospectivefor the elections that would have led to the formation of my government) would be introduced. Candidates who secure more than one-twentieth of the valid votes polled will be reimbursed Rs 25 for each vote polled on a formula linked to the population and geographical extent of the constituency, normalized to an assumed 100 per cent voting rate. Surveillance will be strengthened through video cameras in polling booths and other security measures taken, as well as very significant penalties imposed, on people who engage in booth capturing; and
  • the security deposit for elections would be increased to Rs 5 lakhs from the current Rs 10,000, and forfeited when less than one-twentieth of valid votes are polled by a candidate. This lower forfeiture limit will allow many more candidates to contest, while the much higher security deposit will deter non­-serious candidates.
There is clearly some arbitrariness in these numbers which will need to be fine-tuned over time to ensure that the gate is kept open for serious candidates but shut out for frivolous ones.

Freedom Ministry and a New Constitution

A new Freedom Ministry and Department will be created at once, charged with promoting our freedoms. It will be headed by a Minister for Freedom. The Prime Minister and the Minister of State for Cabinet would be served by this Department as well, which would deal with political affairs (excluding internal security) and advise Cabinet onthe extent to which all new laws and regulations proposed are compatible with freedom. It will also deal with matters that fall across more than one department, such as general principles of recruitment to the public services and subjects not allocated to other departments.
  • The Indian Policy Office (IPO) would form its core advisory area comprising policy professionals with demonstrated capability to analyse policy in relation to economic impacts and impacts on our freedom. The IPO will, by and large, hire new analysts through open competition, including Indians currently teaching economics and finance in the world’s top universities – these people will be hired on short or medium term contracts and paid salaries comparable to what they are currently drawing abroad. The idea is to suck back top class policy talent of Indian origin currently sitting abroad.This office will function as a division of the Department but will retain significant independence in its advice. The Minister for Freedom would provide the Cabinet with the IPO’s original advice, as well as his or her own comments and recommendations.
  • A separate division of this department will review all existing laws to assess their compatibility with freedom.
  • The department will coordinate all legislation required by this blueprint, particularly a new Public Administration Act and Superannuation Act by the ninth month.
  • In Chapter 3, we saw how a new Indian Constitution can be fast-tracked. Processes to create a new Constitution will be put in place by the Department, such as convening a new Constituent Assembly with the approval of all the states within six months. The draft Constitution so prepared will be put to a referendum within six months of its completion. The task of translating the existing Constitution into relevant Acts would also be co-ordinated by the Freedom Department to ensure that, subject to the referendum being successful, the new Constitution would be able to take effect on or before the first day of the thirty-first month of my government.
  • Surveys will be commissioned by the Freedom Minister through an independent organization to assess citizens’ views on the level of corruption and service delivery in various departments. Results would be published quarterly and inform the public self-reviews of Ministers as well as confidential performance reviews of secretaries.

[Note: This is an extract from my book, Breaking Free of Nehru]

[i] GDP = Gross Domestic Product. It represents the total value of production in a country.

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