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We desperately need more public capacity

LiveMint logoLiveMint 03-06-2014 Dipankar Choudhury

Why do we not deem this woeful lack of debate on public capacity reprehensible, let alone concerted and aggressive efforts to build it? This critical dimension has been completely missing in all passionate demands and offers for better quality governance, almost leading one to believe that keeping governance a fuzzy notion suits vested interests.

That the lack of institutional capacity is straining society and the economy at the periphery is evident, and the list is endless. So we have Parliament that considers lawmaking an avoidable sideshow, and it is lamentable that it does not take adequate help from the likes of non-profit PRS Legislative Research for capacity-building that is primarily responsible for the egregious legislative deficit. Remarkably, the Central Bureau of Investigation (CBI) did not know the meaning of the word spectrum when the 2G spectrum scam was taken up by it for investigation.

We are at a loss as to how to handle public-private partnerships. We helplessly bear with the ignominy of our air safety ranking downgraded—notably, not because Indian aviation was adjudged unsafe as such, but because we did not have up-to-the-mark systems for monitoring safety. The Election Commission, arguably India’s most respected public institution, is out of depth in explaining the abnormal expansion or contraction of voters’ lists in small demographic zones. And the lesser said about clinical trials and spurious drugs, the better.

One reason for shying away from deliberation on public capacity is its reductionist interpretation in terms of numbers. Somehow by now there is a deeply ingrained aversion to large numbers in government bodies—or the public sector in the broader, classical sense—because we strove hard, most of the time successfully, to cut numbers in these places over the last 20 years.

However, even based on this flawed yardstick, there is a vacuum. Swaminathan Iyer never tires of pointing out that considering the welfare state that we have always (supposedly) been, western Europe has seven times the number of government employees per thousand population than us. Symbolic of the classic manifestation of insufficient public capacity, the putative excess is due to many of these employees in all the wrong places where computerisation and process changes have rendered them redundant. But where they are required—police, passport offices, judiciary, or for that matter the Insurance Regulatory and Development Authority (Irda)—there is an acute shortage. It is common knowledge that countries that are far more globally integrated have much larger public institutions than relatively closed ones, pointing clearly to where we ought to be headed.

So, contrary to popular perception, we actually need substantive augmentation of manpower strength of our public institutions.

But public capacity is not only about manpower, not even manpower of the right skill, but technology and a host of soft factors such as attitude, doggedness, willingness to learn and co-ordination. So the Comptroller and Auditor General of India has to learn how the private sector functions if they have to audit telecom firms, the Securities and Exchange Board of India (Sebi) and Irda have to abjure unsavoury sabre-rattling, and institutions such as CBI and enforcement directorate will have to stop regressing to the 1960s and 1970s when pre-supposing venality was par for the course.

Lest we feel otherwise, even in the financial sector, public capacity is severely deficient. Due to the inability to clear approvals for new products on time, the Irda has been flip-flopping between requiring an approval before launch and the use-and-file system. Sebi is not able to carry most of the insider trading charges to their logical conclusion—we can’t expect a Rajat Gupta-style watertight indictment for a long time to come. The financial services division of the finance ministry has become just a department for appointing bank chairmen and managing director and micro-managing them.

Understandably, our largest and most venerated public institution in this sector—the Reserve Bank of India (RBI)—is also probably the most capacity-constrained. To its credit, it is also aware of it and has taken initiatives from time to time, such as the most recent Gopalakrishna committee on capacity and skill-building. But the task at hand is enormous if the institution has to give out more bank licences, regulate microfinance and alternative deposit-taking schemes in addition to other financial companies it has supervised hitherto, and formally adopts inflation-targeting.

It is often alleged, not without reason, that RBI has been vacillating on granting differentiated licences—as against the monochromatic one prevailing currently—because it does not have the capacity to regulate them. Likewise, it has to figure out non-adversarial means of interacting with Sebi, Irda and the Pension Fund Regulatory and Development Authority (PFRDA).

With deficient public capacity, both the constructive and deterrent elements suffer. So, financial inclusion and consumer protection move at a snail’s pace, and chit fund scams and burgeoning non-performing loans of banks shake us out of slumber intermittently, only to induce somnolence shortly thereafter. No strong state can exist with weak capacity of public institutions.

The author has been a senior research analyst on financial services as well as other sectors at various investment banks, and is currently an independent consultant focusing on banks and financial services.

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