Administrative Reform to Meet Emerging Challenges in India

1. Administrative Reform to Meet Emerging Challenges in India M. Govinda Rao Director, National Institute of Public Finance and Policy, New Delhi Member, Economic Advisory Council to the Prime Minister MGR - NIPFP

2. Scheme of Presentation • Introduction • What is administrative reform and why is it necessary? • Models of government and administrative reform • Changing role of government and administrative reform. • Phases of administrative reform in India • Recent Initiatives in Administrative reform • Future Challenges • Concluding Remarks MGR - NIPFP

3. Introduction • Efficient administrative system is a necessary enabling institution for good governance and public service delivery. • It encompasses not just governmental system encompassing legislature, executive and judiciary, but also provides an interface between public and private sectors. • Efficient administration is essential for the functioning of not only the various segments of public sector and its interface with the government, but also the efficient functioning of private sector and its interface with the public sector including the government. • The role of administration is different in different societies and therefore, needs to be reformed in keeping with the changing role of the government. MGR - NIPFP

4. Why is Administrative Reform Necessary in Countries Like India? • Administrative Reform is a generic process permeating all phases of administration to create institutional capacity in the governmental system to undertake its tasks efficiently. • Administrative reform: • Is a process; • For creating enabling environment; • Should be tuned to meet challenges of development and globalization; • Should adjust to changes in development strategy; • Need to adapt to changing technology. MGR - NIPFP

5. Role of the State in Economic Activity • Why should governments exist? • What type of system leads to inclusive development? democratic governments or dictatorships? • Very small societies: voluntary action possible. In large societies voluntary action fails in providing collective goods (including law and order). • Preference for stationary bandit over roving bandits. Chinese warlord (1920s): Feng Yuhsiang: suppressed roving bandits; incentive to save and invest – incentive to protect the subjects. Incentive to expand his influence; incentive to create infrastructure; First blessing of the invisible hand: The leader of the roving bandit is led as though by an invisible hand to settle down and head the government. • Encompassing interest for a stationary bandit is limited. Can’t make creditable commitments; no compulsion to keep commitments; • Autocrat's optimum does not take account of encompassing interest whereas democrat’s does. MGR - NIPFP

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7. Changing Role of Government and Administrative Reform in India • Colonial administration and its objectives • Sources of Administrative Reform in India: • Changing development strategy • Political processes. • Globalization • technology. • Phases of Administrative reform in India: • The phase of creation and consolidation (1947-1964) • Phase of centralization (1964-90) • Decentralization, liberalization and globalization (1991 onwards) MGR - NIPFP

8. Chart I Centre States (28) Rural Local Bodies (247033) Urban Local Bodies (Municipal Corporations (96) Municipalities (1494) Nagar Panchayats (2092) District (515) Taluk/Block (5930) Village (240588) MGR - NIPFP

9. Phase I: Creation and Consolidation (1947 – 64) • Setting up the system: • Challenges of partition • Constitution 1951. Assignments and the Finance Commission: • Setting up institutions of governance: legislature; executive and judiciary; • States’ reorganization • All India Services; Erosion of integrity and the steel frame of services; • Planning in a mixed economy; • Scarcity and controls. MGR - NIPFP

10. Phase II: Centralization (1964-90) • Weakening executive in the aftermath of conflicts with China (1962) and Pakistan (1965). • Declining standards of administration; • Nationalization of commercial banks; • Confiscatory tax rates and a culture of poor tax compliance; • Change in the party in power; • Poor fiscal management. • First Administrative Reforms Commission (1967) MGR - NIPFP

11. Phase III: Liberalization-Globalization1991 Onwards • Economic Administration Reform • Industrial reform: Licensing system; • Greater role for the market: Strengthening the regulatory system (Electricity, Telecom, Insurance, Stock exchange etc.) • Dilution of public sector; • Fiscal and financial sector reforms; • Decentralisation reform MGR - NIPFP

12. Disquieting Features of Administration • Legacy of planning; • Overbearing administration and bloated bureaucracy; • Lack of incentives and accountability; • Ineffective administration; police; • Pendency in courts; poor legal system. • Persisting Fiscal imbalances: Fiscal restructuring plan; • Infrastructure woes; • Non-responsive administration and poor service delivery;. • Oligopolistic power structure and elite capture of public services. • Lack of systems to elicit preferences of disadvantaged sections and women and poor targeting of public services • Economic governance problems: Impediments to internal trade. • Political developments – coalition politics; shortening time horizon • Criminalization of politics and politicization of criminals MGR - NIPFP

13. Decentralization and Public Service Delivery • Lack of clear assignment. • Transfer of functions to local governments, lack of autonomy and unfunded mandates. • Inadequate revenues and lack of incentives: • Local tax handles: negligible role of local governments in raising revenues. • State transfers • Central transfers • Schematic and segmented transfers. • Poor accountability • Lack of management information system. • Poor capacity to design and implement public service provision. MGR - NIPFP

14. Recent Initiatives in Administrative Reform • Electoral funding reforms promoting transparency and fairness • Disclosure of antecedents of candidates • Limiting the size of council of ministers to 15 per cent of the strength of the lower house of parliament; • Office of profit controversy; • Value Added Tax introduction • Right to Information Act. MGR - NIPFP

15. Concluding Remarks • Strength of the system: The administration has tried to adjust to the requirement of times with some success; Yet, there are several problems and unless these are addressed, it will adversely impact on growth. • Forward looking reforms needed in the bureaucracy including police and judiciary to meet the challenges of internationally mobile capital and labour. • Criminalisation of politics needs to be dealt with; • Regional disparities is a major source of discontent; this has to be dealt with. • Restructuring political, bureaucratic and judicial systems; • More effective decentralized planning for inclusive growth. • Focus on human development essential; • The Second Administrative Reforms Commission has been appointed to go into the entire gamut of issues. MGR - NIPFP