Thoughts on economics and liberty

Tag: Breaking Free of Nehru

What Would I Do If I Became India’s Prime Minister? #7

School Education

Twelve years of education is now a norm in most free nations. My government will guarantee support for the education of all permanent residents of the country who want to study up to standard 12 or age 18(whichever comes first), noting that this does not amount to compulsory education. This would also include support for equivalent vocational training. Today, about 16 per cent of India’s children in the age group 6–14 do not go to school at all, amounting to tens of millions of children. Most also drop out of school well before completing high school.
Getting every Indian to complete standard 12 may therefore sound like a pipe dream. But it will be achieved quickly with the policies outlined below. My government’s solution will be to deliver high quality education to all children of India at the cheapest possible price. Since schooling is largely a state subject, therefore this policy will apply initially to Central Government schools only. However, states will be given incentives to move to this model.
 
My government will fund parents for their children’s education, and not manage schools or appoint teachers.If we apply the criteria for the review of government activities (outlined in Box 13 in the Online Notes[i]) to the school sector, we find that the government does not need to build, own and maintain schools, or deal with lakhs of school teachers directly, in order to educate every child. The current approach is too centralized and bureaucratic. It leads to mediocrity since local information can never be factored into the equation. Having been a secretary of the Education Department in Assam, I have at least some knowledge of the extensive corruption in the education departments and directorates of India. I have also inspected non-existent primary school buildings which were shown as having been completed on paper. Our current socialist approaches are completely inappropriate, both theoretically and empirically.
 
Governments are also very soft on their own failures. A Director of Schools will generally demand stringent standards from private schools that want to be licensed but will be pathetically indifferent to the shoddiest quality of education provided by government schools themselves. However, if all education services are provided by the private sector (i.e. by private citizens themselves), a government regulator can become an effective judge of school quality. We also know that parents generally prefer to send their children to private schools because the standards of accountability of these schools are much higher. Parents get full value for the extra money they invest in their children’s education. Privatizing all government schools will therefore ensure that all schools in India are fully accountable. Further, under the current system, the lands and buildings of government schools are not being used in the most efficient manner. Privatization will ensure much better resource utilization. By giving ownership – in most cases through educational consortiums – to teachers, the commitment of private school owners towards the maintenance of buildings and school infrastructure will also be enormously strengthened. As a rule, whatever exists without a specific owner is destined to be neglected. Finally, we know that managing a school is a hands-on exercise like managing a business. Governments are very inefficient in doing hands-on things and running businesses. The average government bureaucrat or teacher has good intentions but no incentive to deliver world-class educational services at the lowest possible cost. The private sector, on the other hand, can only make a living if it delivers high quality services in a cheaper and better way than its competition.
 
It will not be of concern to my government whether the privatized schools are run as ‘for-profit’ or ‘not-for-profit’ institutions. If, at the end of the process of maintaining a school and providing high quality educational services, a school can make a profit, this will only help, not hinder, the supply of more good schools. Profitability is the finest signal of quality in a marketplace. There is no reason why it should not be allowed to apply in the case of schools.
 
In this model, each child’s school education will be funded, individually, up to year (commonly known as ‘standard’ in India) 12, as follows:
  • Schooling will cost child ‘A’ nothing if parents choose a school which charges their ‘A’ a fee equal to or less than what the government is prepared to fund that particular child.
  • Schooling will be partially subsidized where parents choose a school which charges a fee for ‘A’ over and above what the government is prepared to fund that particular child.
Schools will bill the government for each child individually. Schools will not receive funding as a lump-sum which is unrelated to the size and nature of their enrolments; they will get a specific amount for each specific child they enrol. Schools will therefore have the incentive to go out and literally beg parents – such as parents of child labourers – to send their children to school. The more the children that these schools can enrol and pass out at an agreed, independently tested standard, the greater the money they will receive.
 
This method of private sector provision of education is as guaranteed to succeed as India’s current method is guaranteed to fail. This method will also ensure that the choices made by parents are honoured. Honouring parents’ choices can only be a good thing. No one could be a greater well-wisher of a child than his or her own parents. A government should never interfere with a parent’s choices without very good reason – only if both parents have a conclusive record of neglecting their children can a government make better decisions on behalf of the child. Let me now outline the model in detail.
School Privatization:
  • As a first step, my government will get completely out of school ownership and management. Over the course of the first 30 months, all government schools will be privatized. Their land,[ii] buildings and equipment will be sold at market rates through an open tender in which educationists working in these schools will be encouraged, through a (small) preference in the conditions of the sale, to form consortiums which can be registered as companies or societies, and make a bid. It is expected that such consortiums can create a persuasive business case to raise bank loans and buy the schools with repayments to be made from earnings made over the years.[iii]
  • Funds raised from the sale of schools will form part of a one-off increase in government revenues to be used to offset the initial increase in core function expenditures.
  • The following conditions would apply to the sale:
    • The school’s land cannot be sold for 50 years. The government would retain the right to acquire land from school owners for other public purposes where it becomes necessary to do so, upon payment of slightly greater than market value, after making suitable arrangements for the children affected.
    • The school’s land or buildings cannot be used for any primary purpose other than school education. School owners will be allowed to operate business activities approved by the (local government) council from the school campus after school hours. There is no incompatibility between having temporary shops or a small gym as a side-business operating in the school building after school hours so long as the funds raised from these activities by the school help to keep it solvent and keep its fees low, while also meeting the quality standards prescribed by the education regulator.
    • The consortium which buys the school will not disadvantage existing staff for up to five years from the time of purchase of the school on a similar sliding scale referred to earlier.
  • Schools will not be protected from competition in any way. Practically anyone could set up a school anywhere, charge any fee and try to attract students. There will be no quotas or limits on the number of schools in an area, even if this may make it harder to raise loans. This openness is necessary to prevent monopolies of any sort arising in what should be a completely free market. So long as a school complies with quality requirements, through ‘deemed licensing’, it could be launched. Schools would self-assess against standards established by an independent association of educators nominated by the education industry, and notify the education regulator of their existence – that would amount to becoming a licensee. Stiff penalties would apply if a school was later found to have violated the standards. Schools would be permitted to enrol children only at the beginning of a school year and parents will not be able to change their children’s schools during the year unless there are exceptional circumstances.
  • To prevent the financial collapse of schools through mismanagement, each school will be compulsorily required to purchase bankruptcy, fire, workers’ compensation and public liability insurance from the market, to be reinsured initially by the education regulator until the rates of school collapse are better assessed and private market premiums fine-tuned. If the buyers of a school turn out to be bad managers, or worse, this insurance will prevent the school from going belly-up and children from suffering.
  • This model will create a competitive market for high quality schooling. Only the most efficient schools, fully accountable to the parents for the quality of education they provide, will survive. Poorly managed schools will be bought out by more efficient schools. There will be no barrier to the potential size of a consortium. An efficient consortium could potentially buy out all schools in the country. So long as even one other efficient competitor could set up a school in any place in the country, the size of the consortium would not matter.

Child-based funding:

  • School will bill the government each month (or quarter), seeking reimbursement against eligible vouchers (eligibility below) for each child, by name.
  • By the thirtieth month, my government would have allotted a unique identification number to each child in India between the ages of four and eighteen, in preparation for this program. This number would be linked to a database which records key biological features[iv] of the child and photographs of his/her parents, to prevent potential falsification of records commonly done by illegal immigrants to India.[v] A new identification number would thereafter be allotted to each child who subsequently reaches the age of four. This database will be linked to the previous year’s income tax return of the child’s parents,and would generate a voucher of a specific value, linked to that income and to the expected educational costs for a child of that age. Vouchers will therefore differ in value. Children of poor parents will get vouchers of a much higher value than children of wealthy parents.
  • Children would go to a school selected by their parents. Parents would pay an amount over and above what the government voucher reimburses the school for each of their children separately. Poor parents would of course not pay anything since they would have high-value vouchers. Richer parents will pay a top-up amount.
  • This higher allocation for poorer parents is a crucial part of the model. The system today does not provide genuine equal opportunity even though it is based on the socialist ideology of equality. The quality difference between government and private schools is therefore quite vast, and does not allow children from rural areas or slums to prosper. My government’s policy would make schools in rural areas or slums extremely attractiveto potential school owners, since children with predominantly high-value vouchers will attend such schools. Therefore schools in economically backward areas will be able to afford much higher salaries for teachers, and potentially attract even better teachers than schools in urban areas. In this manner, all schools will be able to provide a robust quality education at the minimum.
  • An annual adjustment would be applied to the value of a child’s voucher after the income of the child’s parents is declared to the tax office. Excess payments made for the child to the school would be recouped through the parent’s future taxes.
  • The voucher system will be managed by a range of private service providers under strict conditions of accountability. The independent education regulator will monitor the quality of these providers and ensure the overall integrity of the voucher system. Stiff penalties will apply if preventable fraud is detected at any level.
  • Schools would be required to report a child’s death or transfer from the school within one month to the voucher service provider. Should it be found that a school has charged the government for a child who was no longer studying there, the school will face financial penalties including potential withdrawal of the school’s license and criminal prosecution of the school owners.
  • Education departments and directorates, as well as inspectorates of schools, would be mostly disbanded by the end of the thirtieth month; many of their teaching and non-teaching staff would have been, by then, employed by the larger consortiums. The social infrastructure department, which will manage the overall budget for school education, will work with the independent education regulator to ensure that minimum outcome standards of educational attainment are met by each school, and that vouchers are administered properly.

Higher Education

Higher education, on the other hand, is quite different from school education. There are no entitlements to this level of education.
 
No one can demand that every tennis player should be allowed to play in the Wimbledon tournament. It is one thing to provide a level playing field for people to develop their talent and quite another to demand entry to the highest levels of human activity. There is a thing called justice, by which only the best person, who not only has the talent but who has put in the necessary hard work, must win entry to the portals of higher competition. Entry into a portal of higher education is similarly a privilege, contingent upon significant hard work. It has nothing to do with providing anyone a level playing field.
 
Another reason why my government will not fund anyone’s higher education is because it would mean the poor would subsidize the rich. Tertiary institutions are ‘fishing nets’ to catch the society’s most talented people. Those who successfully complete tertiary education earn, on average, significantly more than those who are unable to gain admission to these institutions. The benefits of higher education are captured almost entirely by these people in exchange for services they provide when they join the workforce. Students going to tertiary institutes therefore will become much richer, on average, than the average taxpayer. If the average taxpayer were to subsidize their education it would amount to the poor subsidizing the (future) rich. There does remain the question of ensuring that all those who obtain admission to institutions of higher education are able to raise sufficient money to attend the courses. That can be easily resolved. In doing so, the policy outlined below will deliver the world’s best tertiary education system to India. The objective is to create a hundred Harvard Universities in India, each a centre of excellence operating only on student fees and alumni donations.
 
Low Interest Loans to Tertiary Sector Students:
  • Tertiary institutions will charge full fee virtually from everyone barring the few to whom they give scholarships. By the government not funding tertiary institutions, significant tax revenues currently allocated to higher education will be released for more essential purposes, even as the quality of university education and infrastructure is significantly boosted by the open market fee charged by universities.
  • Those admitted to a course by any recognized tertiary education provider will be loaned money for 15 years at a low rate of interest by the government to attend that course:
    • An Indian citizen (not overseas citizen of India or permanent resident), who gains admission into an approved tertiary institution in India will be eligible to borrow from the government all fees charged by that institution, as well as the cost of necessary books and equipment and modest living costs.
    • These loans will bear a low interest – around 1 per cent more than the (variable) Reserve Bank rate. The repayment would be through the income tax system after the student gets a job and starts earning above three times the level of the poverty line. This loan will enable all meritorious persons in India to pursue higher education.
    • Even after India becomes completely free there will remain some tendency on the part of some students to leave the country after being educated at the taxpayers’ expense. Such students may not return the loan and also pay taxes to other countries which did not invest a rupee in their education, but potentially not repay their loans to India. Where similar schemes operate elsewhere, as in Australia, an international agreement will be sought by those countries to ensure these loans are refunded to India. Either way, a system to monitor departing students will be established. Passports and immigration officials will be given access to the database of student loans. Students who leave India – even on a temporary visit – will need to furnish a bank guarantee equivalent to the amount of their currently outstanding loan plus the present value of all costs incurred by taxpayers on their school education. This guarantee would be forfeited should they fail to return within the stipulated time. Those without proof of this guarantee will be turned back at the immigration check and not permitted to leave India.
    • How will these student loans be funded? The basis of this loan model is that income streams from university students are far more secure than houses or land. Almost all university graduates will earn well, making it a trivial task to recover their loans through the tax system. Therefore, a rolling debt model will be used. From the thirty-first month, ten-year bonds will be issued equal in today’s real value to the student loans expected to be issued (not repaid) that year. Prudent investors in India, including banks, will buy these bonds.
    • The bonds will be retired after ten years using multiple-year recoveries from students who would by then be in the workforce, noting that not all bond repayments will be met from student loan recoveries in a particular given year. Apart from mismatches of timing between student earnings and the face value of the bonds, the residual costs of administering this programme will have to be paid by the taxpayer as well, plus the difference in interest costs between the effective rate of the bonds and the Bank rate and a write-off for defaults. This amount will form a subsidy for higher education. The justification for this small subsidy is that it provides an equal opportunity – to those selected for higher education – to complete their courses. With efficient management, the subsidy will be reduced considerably.

Tertiary Sector Privatization:

  •  As with schools, there is no reason for the government to manage the delivery of tertiary education. Indeed, there is even less reason, since no bureaucrat can teach an Einstein or tell him how to manage his discipline. Let experts manage their own institutions. All government universities, technical colleges and the like will be sold off by the thirtieth month on the same pattern as schools, and accredited by imposing on them a few conditions necessary to demarcate them as institutions of tertiary education. These institutions will become for-profit corporations with shares traded on the stock market. Their sole business objective would be to provide tertiary education and they would use their lands for the primary purpose of higher education for 999 years.
  • They will have operational independence. They would set their own salary structures to attract distinguished academic professionals and, consequently, bright students. They would determine the type and quality of tertiary education services they wish to deliver, the mix of courses to offer and other things that universities do. The competitive market will then deliver the best mix of options for students. Not one rupee will be spent on any ‘educational planner’ to predict the demand for graduates in specific areas. Only that much higher education will be provided as the market needs and will bear.
  • The reason why universities won’t jack up their fees to astronomical levels upon privatization is because of their critical need to attract customers – in this case, high quality students. High quality students, like any other self-interested person, will look for good quality but low cost education and force the fees down to competitive levels.
  • Will some academic disciplines be ousted from the teaching agenda by this model? Doubting Thomases will argue that privatization will affect the supply of courses in arts and philosophy. But this argument is without basis. Modern private sector corporations recognize the great value of liberal education in broadening the perspectives of managers. Indeed, arts graduates do better in modern businesses than technical graduates because innovation, entrepreneurship, leadership, people management and strategic thinking have little to do with technical skills.
  • In this manner, the freely operating tertiary education market will decide what courses are needed for India. I imagine we would get a hundred Indian Harvard Universities in a few decades through this model.
To be continued.
 
[Note: This is an extract from my book, Breaking Free of Nehru]
 

[ii] Where the land (as in many villages) has been donated by the community to the school, the proceeds of the sale relating to land will revert back to the local community.

[iii] If there are no buyers for schools in particularly remote areas, the existing arrangements will continue for another year, when a similar sale is attempted again.

[iv] Such as the iris of the eye, thumb/ finger prints; ideally, a DNA record.

[v] I refer to the example of Assam which has been swamped by well over a million illegal immigrants from Bangladesh. These immigrants usually obtain fake school certificates which link the illegal migrant to a pre-1964 migrant who was legalized by the Assam accord. The genuineness of these school certificates cannot be verified without a biological-based database. 

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What Would I Do If I Became India’s Prime Minister? #6

Some First-Order Core Functions

A good government needs to deliver high quality outputs in at least three ‘first-order’ core areas, of defence, police and justice. These functions must be carried out outstandingly well and, if necessary, to the detriment of all other functions. If funds run short, a government can always provide incentives to citizens to take up relatively secondary things like infrastructure through a range of innovative ways by transferring property rights over roads, airports, or railways. I have outlined key elements of reform in these first-order core functions in the Online Notes.[i]

Second-Order Core Functions: Infrastructure and Equality of Opportunity

After performing these first-order core functions outstandingly well, a government must focus on providing infrastructure and equality of opportunity. Appropriate funds need to be deployed to deliver second-order core functions well. Given space constraints, I do not discuss infrastructure provision here. All I note is that where goods are excludable, i.e. wherever boundaries can be drawn around an infrastructure and therefore user-pays ticketing is feasible, such infrastructure will be sold in a systematic manner to the private sector. Where partial ownership or property can be given to the private sector, such as through toll-based highways or other public–private partnerships, that option will be explored. Finally, where it is not feasible to privatize infrastructure because of non-excludability, the government will directly provide the service wherever possible, outsourcing it and acting as an auditor rather than manager.
 
But moving to the very important issue of equality of opportunity, four key aspects are involved in its provision: (a) elimination of poverty, (b) provision of school education, (c) higher education and (d) basic health.
 

Poverty Elimination

India should be able to eliminate poverty even after spending far more money than before on core functions. Subsidies and poverty alleviation programmes today barely reach a small proportion of the poor each year, being almost entirely absorbed in administrative expenses and corruption. As such the poor can’t be lifted above poverty. My preliminary estimates made in year 2000 showed that if this money could be directlytransferredto the poor, it would be almost exactly sufficient to pull all of the poor above the poverty line each year.[ii] Funds are therefore not a major issue here; it is a matter of the way they are directed. Even if my preliminary research is wrong, i.e. even if, upon further analysis, it is found that the money needed to eliminate poverty is not cost-neutral and that it would need additional resources, banishing poverty is essential and must be done. The mind-numbing poverty experienced by millions of our citizens has to be abolished. A liberal government’s key role is to ensure equal opportunity to each family.
 
As detailed in Chapter 2, a direct mechanism to transfer funds to millions of poor people in India will be put in place, based on annual income tax returns to be filed by each family. Instead of 1000 government programmes that deploy 40 lakh bureaucrats in the name of helping the poor, we will only have one programme, called the negative income tax (NIT). India’s largest IT companies will be invited to propose methodologies to implement this system. About half a dozen pilot projects will be rolled out by the end of the first year and the most effective (not cheapest) method will be selected for national implementation. These NIT payments will become fully operational in the fourth year across the country and, after a year of implementation and evaluation, all subsidies will be scrapped and the public distribution system shut down.
 
Over the subsequent years, the rapid growth of the market economy and improvements in education will make this policy mostly redundant as most people will rise above poverty on their own; indeed they would have become well-off. Nevertheless, some people would remain who can’t cope with the demands of the market; so the NIT will be a continuing program. The NIT will be linked to a requirement to work to ensure that able-bodied people do not get paid if they are found to have avoided going to work. This programme will be managed through the private sector. The poverty line will also be kept low so that very few people will deliberately choose to be poor. Elimination of poverty will also include the payment of premium for private health insurance for each person. How major health care will be provided to all is outlined in the section titled Health Care.
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What Would I Do If I Became India’s Prime Minister? #5

Phase 2 – Breakthrough (Second Two and a Half Years)

The midnight of the first day of the thirty-first month of my government will be a momentous occasion. Major changes will take effect at that moment. The tryst with greatness would have begun. Among the changes, the new Constitution would become effective; tenured civil services will be disbanded; and all government functionaries who were successful in obtaining Phase 2 appointments transitioned to their new functions.
 
On the first working day after that most public sector employees will move into sparkling and well-equipped modern offices – offices which will have no resemblance to their smelly and file-infested socialist avatars. Most of the states will also transition in the same manner, or will do so a few months later. Public servants across India will thus move into a far more dynamic, flexible and challenging – as well as more remunerative and satisfying – work environment.
 
All roles transitioned to Phase 2 would be deemed to be new appointments, with the relevant secretary being the appointing authority. Fully computerized service records will be started afresh and earlier records archived while ensuring that the relevant leave records, records of disciplinary proceedings, and health and safety matters are adequately transferred to the new system. All underperformers would likely have been filtered out during selection processes for Phase 2, and so it is expected that the secretaries would start with a clean slate. But among other things, each secretary would put in place an effective performance management system in consultation with staff to proactively deal with underperformance. Secretaries will explicitly work towards the earliest possible termination of tenured underperforming employees subject to natural justice (except for executives where fewer requirements on natural justice would apply).
 
During Phase 2 many Ministers appointed earlier to Phase 1 portfolios will no longer retain their roles due to a consolidation of portfolios. These MPs will be tasked with assisting the Freedom Minister to coordinate and complete a review of all existing policy and laws, supported by specialist teams from the IPO.
 

Local Government Reform

A major action for my government will be to initiate the reform of local governments in India with a special focus on urban governance. Urbanization is the natural consequence of the division of labour, specialization and innovation that arises from freedom. Free societies are urban societies. Given our model which opposed freedom and wealth, only 28 per cent of our population lives in urban areas, against 78 per cent in the USA, 84 per cent in South Korea, 86 per cent in Australia and 90 per cent in the UK. With the levels of freedom proposed in this book, India’s urbanization should exceed 80 per cent by 2100 AD. This makes urban governance very important. Our cities are congested and polluted, with significant failures of infrastructure. They need to be managed by the people directly, and effectively.
 
An incentives-based governance model will be adopted, givingfullcontrol to elected representatives over the employment of bureaucrats working in local government bodies. This principle will also extend to rural local governments. Today, super-sized municipalities like the Municipal Corporation of Delhi[i] or the Calcutta Municipal Corporation manage, or rather, badly mismanage, our urban areas. The reason for this misgovernance is the absence of any accountability in the system. As a result, parallel ‘governments’ have started evolving everywhere, that require citizens to pay twice for the same service such as garbage collection – once to the municipality and the second time to local groups of residents who organize the garbage collection privately. This is anarchy.The solution is to have small local governments that are professionally run and directly supervised by citizens.
 
This supervision would not be toothless. Today, officials are appointed for life in municipalities and cannot be removed by elected citizens for non-performance. Elected citizens are decorative, an incidental add-on. In the reformed system, elected citizen supervisors would not only be able to veto decisions made about their local environment that they do not agree with, but they would also be fully empowered to dismiss their chief executiveswho would be hired on three year contracts. Consequently, complete control would be exercised on officials down the line. This is how the models of local government work in most parts of the free world.
 
Since the subject of local government falls within the purview of State Governments, this reform will have to be led by the states. Within three months of my government taking charge, it will frame a package of incentives for states to create fully elected local councils (parishads) of a manageable size. The ratio of elected local representatives to citizens would be brought in line with international best practice. For instance, Delhi will get around 300 elected councillors (including Mayors or Pradhans) in about 60 independent councils. These councils will be responsible for providing world-class civic amenities and managing local libraries and community halls. User charges such as land taxes and rates will form their primary source of revenue.
 
Land planning and zoning will be controlled by the councils with the help of professional land planners, environmental scientists and landscaping specialists. Some state inspectorates, such as the food inspectorate, will also be transferred to the councils. States will be provided incentives to modernize associated regulation, e.g. food regulation, to reflect risk-based approaches. These changes would lead to fewer but far more competent inspectors. All these staff will be fully accountable through the contractually appointed chief executives. Each council would be able to set its own rates independently and determine the level of amenities it will provide. Councils wishing to attract wealthier residents will therefore focus on better infrastructure such as parks, while also charging more money from residents. Citizens will therefore physically move to the better managed councils and vote with their feet. Because of the natural competition between a multiplicity of councils, the costs will be kept down. Through this process, world-class services will become the norm in India’s cities.
 
Thereafter, districts and municipalities will be disbanded from the commencement of Phase 2. The ‘imperial’ Collectorates will be dismantled as well, and their land revenue staff transferred to these councils. India is not a colonial administration and does not need ‘political’ officers such as Divisional Commissioners and Deputy Commissioners. The concepts of administrative divisions and subdivisions will also be scrapped. Local governments will act as the eyes and ears of the State government. An overarching regulatory role will remain for State Governments in urban affairs, primarily in making enabling laws, in managing the ownership of land and in building geographical information systems to coordinate the records of land use. These local government reforms will be reviewed after five years to further refine governance at the local level.
To be continued.
[Note: This is an extract from my book, Breaking Free of Nehru]


[i] Lutyens’s Delhi comes under the New Delhi Municipal Corporation, the cantonment under the Delhi Cantonment Board and the rest of Delhi – a mind-bogglingly large area, under the Municipal Corporation of Delhi. This is extreme centralization, which is incompatible with freedom. Freedom requires people to be free to mould their local environment as they please, subject to their joint accountability.

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What Would I Do If I Became India’s Prime Minister? #4

Phase 1

Now to the bureaucracy. The first two and a half years of my government are being characterized here as Phase 1 – Build up, following Jim Collins. The second half of this five-year term is being characterized as Phase 2 – Breakthrough. Since much of the improvement in India’s governance will depend on the active participation of states, they will be provided incentives to initiate similar reforms. I will immediately write to public service heads, asking that the bureaucracy start examining all its work in the light of freedom of the people, and explore constructive ways to systematically step aside from needlessly interventionist activities.

After the Phase 1 restructure the number of departments would be brought down to ten, with around 20 ministerial portfolios and 20 Ministers of State (the latter to ensure orderly succession). Each portfolio would be served by one of the ten departments with a total of ten secretaries in all. Apart from the Freedom Department, other departments will be: i) defence, ii) justice (including internal security, police, support to the judiciary and protection of consumers), iii) external affairs, iv) public finance, v) physical infrastructure, vi) social infrastructure (e.g. public health, poverty elimination through negative income tax, and the regulation, not direct management, of education and medical facilities), vii) commerce (including regulation of industry and agriculture), viii) social capital and community (fostering voluntarism and conducive social relations in the community), and ix) sustainability (managing the ecology – with a time horizon of 1000 years).
 
Two principles will underpin the change programme in the Build up phase: (1) the need to move the structures from the current to the new in a systematic and effective manner, and (2) to do so in a manner by which everyone involved is enabled to understand the rationale for the change and through which no one becomes financially worse off, or experiences distress, for up to five years at the end of Phase 1. This commitment would be on a sliding scale, from one year for staff with less than five years service, up to five years for staff with greater than 15 years service.
 
The part relating to significant distress bears some elaboration. The idea behind it is that nobody should experience either financial or psychological distress in consequence to this change programme, for that would violate the principles of justice. These employees were not responsible for the policy mess and culture of incompetence created by politicians who adopted Nehruvian socialism. Therefore, my government owes them a duty of care to ensure that they are given a reasonable time to rebuild their life where their departure becomes necessary. The government must always be a model employer and set the highest standards of behaviour and people management. Ensuring the health and safety of employees will be a major duty of managers of this change programme. Managers will be empowered to make relatively small adjustments to the speed of the change to humanely manage employee well-being. Throughout this process, collective bargaining will also be encouraged, without sacrificing decisiveness. Collective representation is an opportunity to understand the concerns of employees and to engage them actively in the change process. We definitely don’t want the current styles of authoritarian management to continue.
 
The timelines and deliverables for Phase 1 are outlined below. The month in the sub-headings refers to the time when an activity will be completed:
  • Month 1: The Planning Commission will be shut down from day one. Its policy analysis functions will be transferred either to existing departments or to the IPO. All commitments made under the Five-Year or other Plans will be scrapped. All previously committed funding will be up for review at the time of renewal or extension of funding on a case-by-case basis. Files of the Planning Commission will be sent to the National Archives for recording and open access to researchers.
  • Month 2: My government will not undertake a useless reshuffle of IAS officers. Instead, as a first step, all deputations and postings to and from the IAS, IPS and IFS state cadres to the Central Government will be frozen from the sixtieth day, after which the system of transfers and deputations at the level of joint secretary and above would be scrapped. All new appointments except new recruits to the civil services (and the IPO) will be frozen until Phase 2, urgent requirements being met by ad hoc contracting. The annual intake of new civil service recruits by UPSC will continue till Phase 1 is completed to prevent shortages of trained personnel at the grassroots in the states. These recruits will be treated at par with other employees at the end of Phase 1, and will be able to apply for Phase 2 positions either in Central or State Governments, keeping in mind that traditional roles like sub-divisional magistrates and district magistrates would no longer exist in Phase 2 in states which participate in these reforms.
  • Month 2: Secretaries of existing departments will be given two months to come up with a well-defined set of core competencies including knowledge and leadership standards, as reviewed by internationally reputed consultants, for each position in the rank of joint secretary (and above) to the Government of India.
  • Month 3: Upon approval of these competencies by the relevant Ministers – and the Freedom Minister, to ensure consistency in the standards – all civilian positions at senior executive levels will, without exception, be advertised publicly on the first day of the third month of my government assuming office. There will be no reduction in the number of senior positions in Phase 1. However, all such positions will henceforth be recruited entirely through the open market.
    • As most departments do not handle security matters, there is no reason why non-citizen permanent residents can’t work in such Ministries. Therefore, except for civilian positions in the defence and external affairs ministries, and some positions in the Freedom Department, senior positions in all other departments will be open to anyone with appropriate merit from practically anywhere in the world.[i] All they would need to do before appointment is to apply for permanent residency in India.
    • Compensation payable for these newly advertised positions would be at par with that of senior managers in multinational corporations in India, in the range of Rs 40–100 lakhs annually, to be individually negotiated – noting that a few senior policy analysts hired by the IPO from abroad will earn similar amounts as well.
    • Current civil service incumbents could apply to these positions along with others.
    • A series of interviews and presentations from shortlisted candidates on a range of complex policy matters would be held by teams headed by the lead Cabinet Minister of the concerned department and another Cabinet Minister. Existing civil servants who are short-listed would be encouraged to bring along with them a summary of their perspectives on the strategic plans for their departments (as outlined later). Strategic and persuasive discussion of such plans could help civil servants demonstrate their capability. The selected secretaries will be appointed first – under my signature – and given the option of forming a part of the interview team for joint secretaries. Each secretary would then formally appoint the joint secretaries and retain complete oversight of them, including the rights to dismissal.
    • All these appointments will be on 24-month contracts, extendable by three years if the incumbent is successful in obtaining the fewer Phase 2 positions.
  • Months 5 and 6: Appointments will be completed in five months and appointees will start work at the commencement of the seventh month. Unsuccessful incumbents will relinquish their roles simultaneously.
    • Civil services incumbents appointed to these positions will have to resign from their civil service before taking up these appointments. They would also get the benefits admissible to them on voluntary retirement from their service, over and above their new contractual benefits. If they are not yet eligible for voluntary retirement, they would be deemed to have completed 20 years of service.
    • Unsuccessful civil service incumbents could either revert to the rank of a Director in the Central Government on their existing salary or revert to their state cadre. They could also select an individually negotiated redundancy package plus pensionary benefits under the relevant rules. No other government employee will be offered a redundancy package until the beginning of Phase 2.
    • If some of these positions cannot be filled because suitable candidates cannot be found, or if there are unforeseen delays in recruitment, experts of international or national stature may be tapped on the shoulder and offered short-term appointments on mutually acceptable ad hoc terms at salaries potentially much higher than those indicated earlier.
  • Month 8: Departmental strategic plans: The newly appointed Secretaries would be given 60 days to prepare a 21-month strategic plan for their department to be delivered by the end of the eighth month to the Cabinet. They would work closely with their relevant Ministers and the Freedom Department which would have already conducted background work through the IPO on each potential restructure. These plans will be published on the first working day of the ninth month, after Cabinet approval. These would specify the pathway to the restructure in sufficient detail to guide implementation. These plans will include, among other things, the deliverables and milestones listed below:
    • A high-level reviewof each major activity undertaken by each department to be completed by the end of the ninth month. A two to three page summary on each major activity would be presented to the Cabinet from the ninth to the twelfth months, and all reviews published on the internet after Cabinet endorsement. These reviews would provide the rationale for either continuing with an activity or reverting it to citizens (Box 13 in the Online Notes[ii] outlines the principles that will guide these reviews[iii]).
    • The strategic plans will specify the timelines for implementing organizational and structural change, even asthere is no let-up in the delivery ofcore functions.
    • Regulation should not be directly implemented by departments. Regulatory enforcement and implementation will be de-linked from policy making to minimize capture of policy by regulators. Where such regulatory bodies do not already exist, the strategic plans will specify when a relevant independent regulatory will be established. As part of this process, the Reserve Bank would be made completely independent, tasked with focusing solely on inflation; in the longer term, the concept of central bank will be reviewed and most functions decentralized to the private banking system. To ensure independence of regulatory bodies, appointments of their chief executives would need to be endorsed by relevant Parliamentary Committees from the beginning of Phase 2. This would eliminate perceptions of bias in the delivery of regulation. The delivery of laws will thus become independent of political considerations.
    • The strategic plans will also specify when a separate strategic plan for each departmental public sector body, regulatory body, or undertaking dealt with by the department will be delivered – latest by the eleventh month. Without exception, all business undertakings including defence manufacturers will either be auctioned off in the international market or their shares sold to the people of India by the end of Phase 1. The government will stop being a businessman. Period. Not one business will remain in the government’s hands. Buyers would need to protect the financial outcomes of staff of these undertakings for up to five years after Phase 1 on a sliding scale similar to that for public services. Defence undertakings will be sold only to companies fully owned by Indian citizens who live in India and employ Indian citizens; these companies will also provide periodic reports to the defence ministry and permit random inspections by authorized defence inspectors at any time of the day or night. Exports by such private defence companies would be vetted by the Defence Minister.
    • A key element of the strategic plans will be the comprehensive modernization of the trappings of government administration. During Phase 2 there will be no concepts of clerks, peons, or drivers. Offices would be completely modernized and made ‘open plan’ with senior managers seated in the same work environment as their support staff, excluding joint secretaries and secretaries who could have their own rooms. There would be a number of small and large meeting rooms. State-of-the-art technology and facilities would be made available, including modern workstations with access to global databases and international standards, electronic document and records management; and more importantly, high quality toilets and kitchens for staff.
    • The strategic plans will identify and deliver on thetrainingneeded to ensure that employees wanting to work in Phase 2 possess relevant technical skills. The stringent competency requirements of Phase 2 will mean that those who don’t shape up will have to be let go. In recruiting public service leaders for Phase 1, one of the important competencies will be their knowledge of the skill sets needed for modern governance. In particular, they must be capable of sourcing high quality trainers from across the world.
    • The Freedom Department will coordinate all departmental strategic plans and ensure that each major aspect is properly addressed. When these plans are added up it should become clear how the restructuring of the ten new departments will be completed.
  • Month 9: A new Public Administration Act: The Freedom Minister would introduce a Public Administration Billin the Parliament in the ninth month. This will essentially implement many of the suggestions already made in Chapter 5. For those interested I have provided details in the Online Notes. The Act would come into effect at the commencement of the thirty-first month.
  • Month 9: A new Superannuation Act: As indicated in Chapter 5, one of the key barriers to occupational flexibility in India is the absence of a uniform superannuation scheme that applies both to the public and private sectors. A Superannuation Bill, upon the commencement of which the Central Provident Fund legislation and General Provident Funds would be disbanded, would be introduced in Parliament in the ninth month. This would require each employer, including the government, to transfer 10 per cent of an employee’s gross salary, at a low rate of tax, into privately managed superannuation trusts that would invest these funds into risk categories selected by employees. This 10 per cent contribution would technically form part of the employee’s contribution, and will be included explicitly in all salary packages. I have discussed further details of this important piece of reform in the Online Notes.[iv]
  • In this manner, by eliminating tenured appointments at senior levels, by introducing redundancy for all permanent positions and by enacting superannuation legislation, significant flexibility would be introduced into the Indian labour market. A number of other, more generic, labour market reforms will also be introduced which I do not touch upon here for want of space.
  • Month 9: Constitutional amendment to abolish the all-India services: Also in the ninth month the Freedom Minister will introduce a Constitutional Amendment Bill to wind up existing civil services and repeal Articles 308 to 323. Approvals from states would be obtained and the Amendment enacted as soon as possible, to take effect from the thirty-first month at the latest. Through this process, there would no longer be any Constitutional barrier to the Phase 2 structures. Indeed, this amendment would be made effective as soon as the Public Administration Act is enacted.
  • The amendment would automatically abolish the Union Public Service Commission (UPSC) in its current form. However, under the Public Administration Act, the UPSC will be reincarnated and headed by a Public Services Commissioner. It will shed its recruitment function except for the armed forces, for which a longer and different transition will be separately laid out. It will largely convert into a research organization on public administration and provide recommendations to government on world-best-practice for the bureaucracy. Its periodic recommendations could lead to further streamlining of the public services and help to further increase their agility, productivity and effectiveness. It would also establish newer, and usually better, working conditions every three years for the public services in consultation with employees and their representatives, subject to Cabinet approval. The practice of setting up ad hoc Pay Commissions would cease.
  • Month 22: Advertisement for Phase 2 positions: Based on the details of the restructure, which should emerge clearly by the twentieth month, jobs for all individual Phase 2 positions will be advertised by the twenty-second month, eight months prior to the commencement of Phase 2. These will be open recruitments through the market using procedures prescribed in the Public Administration Act. Current employees of the government will be eligible (as will others) to apply for these, fewer, ‘final’ positions. All appointments made to these positions will be deemed appointments, effective only from the commencement of Phase 2.
  • Advertisements for these positions will be staggered, the senior-most roles being recruited by the twenty-fifth month, well before the junior ones. Senior managers so appointed will chair the selection panels to recruit their future direct reports. All appointments will be completed by the twenty-ninth month.
  • Phase 1 government employees not recruited to a Phase 2 position will be declared redundant with effect from the thirty-first month and suitably compensated. They would also be supported by the Freedom Department through training and guidance in setting up a business. It would be generally ensured that they do not become worse off for up to five years beyond the commencement of Phase 2 on the sliding scale mentioned earlier. It is expected that they will find something useful to do in the radically reformed economy of India. The Freedom Department will also monitor their health and well-being.
  • The performance indicators for Phase 2 secretaries will be significantly tougher than Phase 1 indicators. These will be linked closely to citizen perceptions of departmental performance and corruption. If an organization is perceived to be corrupt by more than a certain proportion of the public, this ‘target’ proportion being drastically reduced each year, Phase 2 secretaries will be dismissed automatically without recourse, despite not having been personally implicated in their department’s corruption.

To ensure a fail-safe transition to Phase 2, suitable transitional arrangements and redundancies will be built into all systems for the first three months of Phase 2 to ensure that no core function is compromised even marginally.

To be continued.

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


[i] Citizens of a few countries will be ineligible due to national security concerns.

[iii] These principles will be revised and re-designed in the form of a checklist or guide before being used for the action strategic plans. The body of literature that will be used for such a checklist includes The Victorian Guide to Regulation available at [http://www.vcec.vic.gov.au/].

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