This pain
and misery
is TOTALLY
unnecessary
This Conference is
about changing India
GOVERNANCE REFORMS
CONFERENCE
India Policy Institute
Hyderabad
Indian Institute of
Public Administration
Delhi
13 and 14 April 2013, New Delhi
Introductory Session 13 April
10 am:
Mr T N Chaturvedi invited by Sanjeev to
chair the session
10:02 am: Introduction to the Conference (Sanjeev)
10:10 am: Inaugural address (Gurcharan Das)
10:25 am: First half of talk by Sanjeev
11 am:
Tea break
11:15 am Second half of talk by Sanjeev
12:05 pm: Special Guest’s comments (Justice Tewatia)
12:10 pm: Chairman’s comments
12:30 pm: Lunch break (1 hour)
INTRODUCTION TO THE
CONFERENCE
Sanjeev Sabhlok
Welcome!
Welcome to the elegant campus of
Indian Institute of Public
Administration
Who is attending this Conference?

Intellectuals
 Senior

officials, academics and business executives
Reformers
 Young
leaders from middle class India (Freedom
Team of India/ Centre for Civil Society)

Ordinary citizens interested in governance
Thank you for coming

You are uniquely interested in improving the
governance of India
 From
all across India
 Significant time and cost
Despite short notice
 Thank you for making the effort to attend
 Thanks to IIPA for making this happen

We’ll have participant introductions after lunch
Objective

To identify reforms in governance frameworks to
create world-class governance in India
 Public
administration frameworks
 Economic policy frameworks
 Regulatory policy frameworks

The Conference won’t have much time to identify
sectoral policy reforms eg. Education
 But
we’ll conduct preliminary discussions on a few
areas
Framing this Conference

HOW do we reform India’s governance?

We need to know precisely what to do.
 E.g.
if you become Prime Minister what will
you do?

“Insanity: doing the same thing over
and over again and expecting different
results. Einstein”
Root cause of misgovernance:
Policy/system design failure

Policies are badly designed
 Policy

frameworks are not used
System’s incentives are flawed
 Inevitability

of corruption
Modern thinking (including Arthashastra) not used
 Politicians
make policy on whimsy, not analysis
 Bureaucrats are totally unaccountable


This Conference is about changing the system
व्यवस्था परिवर्तन
We should not hesitate to adopt the
world’s best ideas

World best practice governance frameworks
 Evidence-based
economic/regulatory policy
 Public administration frameworks
In 1970s/80s, the world discovered economic
and regulatory reforms
 In the 1990s, the world discovered
governance reforms
 India has adopted neither

Broad structure of the Conference
Introductory session on first day:
 Inaugural address by Gurcharan Das
 Two part presentation by Sanjeev (1.5 hours)
Post lunch on first day (and on second day)
 Detailed workshops


One paper presented on Sunday
Preparation of Strategic Plans for use by:
Government of India/ major political parties
 Future political parties and reform movements

Conference Summary/ Report to be published
But first, some housekeeping
Please wear ID card at Conference for meals
 Restrooms - location
 Water
 Tea

 Served
at 11 am sharp
 Maximum 15 minutes

Lunch break 12:30 pm for 1 hour
For any assistance please contact IPI/ Freedom Team of
India volunteers
 Dipinder
Sekhon
 KK Verma
 Sureshan P
 Akshay Shah
 Vidyut Jain
 Abhijeet Sinha
 Rajan Mehta
 etc
Language at the Conference
We’ll use only English at the Conference
 You can discuss in Hindi with me/ FTI/IPI
members after the conference

Following will be uploaded on IPI
website
These final slides
 Key recommendations/ strategic plans
 Papers that are presented/ shared at the
Conference

INAUGURAL ADDRESS
Gurcharan Das
Inaugural Address: Gurcharan Das
World renowned author
India Unbound
and
India Grows at Night
HOW WE - TOO – CAN GET
WORLD CLASS GOVERNANCE
Sanjeev Sabhlok, former IAS (1982 batch)
Questions later


Questions/answers will not be
possible in introductory session
Please note your questions for
discussion in the afternoon session.
A bit about me

IAS 1982 batch, PhD Economics from USA
Taught at Lal Bahadur Shastri National Academy
 Resigned in January 2001 to reform India – from outside


15 years of reform work
Preliminary work in February 1998 (India Policy Institute)
 December 2000: Moved to Australia after finding
unresponsive bureaucracy/politicians/ citizens
 Joined National Executive of Swatantra Bharat Party (2004)
 Started Freedom Team of India (December 2007)
 Wrote Breaking Free of Nehru (2008)
 Organised National Reform Summit at Haridwar on 5-8
April 2013

This talk is:
A distillation of key learnings from over 30
years of experience in the IAS and Victorian
Public Service
Given limitations of time I will focus only on key
frameworks (systems):



Public administration system
Economic policy system
Regulatory policy system
Plan of my presentation

Part 1
1) Theory of good governance
2) India’s system compared with Australia’s
3) Public administration reforms for India

Part 2
4) Economic policy reforms for India
5) Regulatory policy reforms for India
6) Transition from India’s system to world-best system
1) THEORY OF GOVERNANCE
What’s our policy about policy?


Think from the highest level first: what is
policy and what should it consider?
We need a policy about policy
Frameworks
 Without
and systems
good frameworks, bad policy is
inevitable
Two main questions to ask

What should a government do?
 Are
there limits to what a government can do?
 How do we arrive at these limits (eg. net benefit test)

How should it do it?
 How
can a government comprising self-interested
politicians and bureaucrats do what we want it to do?
(public choice theory)
Policy that doesn’t consider both these
issues will be fundamentally flawed
Good policy necessarily considers
implementation issues
The “What” must be well thought out
 “Bad administration, to be sure, can destroy good
policy, but good administration can never save bad
policy.”
-
Adlai E Stevenson Jr
The “How” must also be well thought out
 Policy that is unable to pierce the veil of incentives
during implementation is bad policy
This is what we want
Goal
This is what we get
Bureaucrat
(black box)
Bureaucrat’s
goal
Our
Goal
…. by failing to think about the politician’s
and bureaucrat’s incentives
Sequencing of my talk

I will discuss the “How” first
 Public

administration (delivery) reforms
Then I will discuss the “What”
 Policy
framework and gatekeeping
 Economic policy
A word re: Arthashastra
Arthashastra underpinned India’s past
success

For 12 out of the past 20 centuries India was the
world’s wealthiest, and 2nd wealthiest in six out of
the remaining eight centuries
 Due
to the public policy stance outlined in Arthashastra
Let’s put Arthashastra squarely into the
centre of public policy discourse
Most analysts of Arthashastra have missed its
point




its insights are extremely modern
we should read between the lines to understand what
Chanakya is trying to tell us
All about INCENTIVES
(including disincentives)
Chanakya wanted a strong, minimal
state, with control over incentives
Incentives
Two axes: liberty, incentives
Reminder: incentives
include disincentives!
Liberty
Key dimension #1: Liberty



Liberty is an end in itself. But also necessary for people
to do their best
Lao-Tse’s advice to the king: “Win the world by doing
nothing. How do I know it is so? Through this: The more
prohibitions there are, the poorer the people
become… The greater the number of statutes, the
greater the number of thieves and brigands.”
“I love quietude and the people are righteous of
themselves. I deal in no business and the people grow
rich by themselves.”
India was much wiser in ancient times
कहावत


जहााँ का िाजा हो व्यापािी वहााँ की प्रजा हो
भिखािी
Government should not engage in
business
 Free
markets
 Free enterprise

The natural effort of every individual to
better his own condition is so powerful, that it
is alone, and without any assistance, not only
capable of carrying on the society to wealth
and prosperity, but of surmounting a hundred
impertinent obstructions with which the folly
of human laws too often encumbers its
operations.
- Adam Smith 1776

“Any restriction on liberty reduces the
number of things tried and so reduces
the rate of progress”
- H.B. Phillips (mathematician)
People create ideas, and wealth
Growth = f (freedom, opportunity)
Two obstacles to freedom
1) Government
People innovate
Nanny, paternalistic state:
• interfering
policies
and laws
better
if the
• “Food police”
government gets
Injustice
out of their way
1
2
Innovation
• contracts not enforced
Ideas
don’t
come from
governments
Opportunity
2) Social control
• interfering religious beliefs
• science and critical thinking
insufficiently valued
pushes
out the
frontier
3
n
Governance must
enable liberty
(social reform is not a government’s job)
(technical
frontier)
Key dimension #2: Correct incentives

Chanakya thoroughly understood incentives:
Best talent in government
 High salaries for top officials and Ministers
 But vigorous checks/ audits (even spying)
 Instantaneous dismissal and severe punishment for nonperformance/corruption


Today we have the OPPOSITE incentives in India!

The results achieved today are inevitable
Singapore follows Chanakya’s principles and succeeds
The problem of government failure



Policy makers typically focus on market failure
But the real elephant in the room is government
failure
“Power corrupts, absolute power corrupts
absolutely”
 Politicians
lavishly spend taxpayers’ money
 Bureaucrats maximise their empire
Understanding incentives
Institutions (rules)
Incentives
Endowment
Local circumstances
(beyond the control of the policy maker)
}
System
Created
by policy
maker
Examples: Incentives explain behaviour
Disposing personal rubbish

The same Indians don’t throw rubbish on the roadside in
Singapore
Tenure

Without job tenure an IAS/IPS officer will focus on delivery,
for fear of losing the job
Corruption
Indians were incorruptible when British merchants first came
to India. (They were astonished at such integrity!)
 But today Indians are world-famous for corruption. Why?!

Incentives are at work 24-7
We ask our politicians to lose crores of rupees
during elections.
Then we pay them very low salaries.
Question: Will such people serve us or loot us?
=> Conclusion: our system guarantees corruption.
 Chanakya
would have understood
 But we don’t care to see the world scientifcally
Burying our head in sand won’t make
incentives disappear
Incentives are at work even in our dreams!
Incentives are as powerful as a
physical force
Gravity pulls downwards, hence water flows downhill
Incentives drive human behaviour and almost
entirely determine what someone will do
But incentives are difficult to analyse
 Invisible, complex, layered, and conditional
Despite this difficulty, we ignore incentives at our peril
Example of the power of incentives



I offer you Rs. 100 or Rs.200. Which will you pick?
Rs.200
Always.
 Incentives
may be invisible but have REAL,
PREDICTABLE EFFECTS

Incentives need not only be economic
 But
economic incentives usually overwhelm others
Myth: that Indians are somehow
“different”

Apparently we have a natural tendency to be
corrupt

Not true

Indians respond to incentives EXACTLY as predicted
 Chankya
predicted it
 Modern economics predicts it
 New public management predicts it
China has moved toward incentives
and markets-based governance

Teachers are dismissed in China if a
class’s academic results are below par
 While
in India some teachers get paid even
if they don’t ever go to school!
 Naturally China does better than OCED in
PISA, India is at the bottom of the world
Results exactly as predicted
Half of Class 5 kids in India can’t read Class 2 texts
The incentive (principal-agent)
problem
Agency theory
Company owners motivate managers through incentive
contracts so manager actions (which are unobserved)
can be aligned to owners’ goals.
Usually:
1.
2.
Base salary (for participation) plus
Performance pay (incentive compatible wage)
Plus hire/fire instantly based on performance
Controlling bureaucrats is very hard
Citizens, the masters, have to solve a TWO STAGE
problem:
1) First controlling representatives (politicians)
 2) Second, how politicians can control bureaucrats

Citizen
How to
control?
How to
control?
Black box
of incentives
Black box
of incentives
Lots of hidden actions & complex incentives!
Politicians’ interests are totally
different to ours


Politician’s goal is to get re-elected
He knows that citizens can’t agree on anything
 Impossibility

theorem
He can game the system by catering to a niche
 Median
voter theorem
 Lobbying/ pandering (subsidies/loan waivers)

In addition, he must necessarily be corrupt in India,
it being a mandatory requirement of the Indian
electoral system
How we can force politicians to look
after our interest

Meet the participation constraint
Partly fund elections by the state to reduce use of black
money and allow good people to contest
 Australia pays about $2 per valid vote cast
 High salary to attract good people into politics


Pay incentive compatible wage
Salary high enough to prevent incentives for corruption
 Link pay with performance
 Reduce tenure (from 5 to 3 years) to keep them on toes

Singapore and Australia pay politicians well, thus attracting top talent
and reducing incentives for corruption – Chanakya would have approved.
Bureaucrats’ interests are different to
ours, too
“Lurking below each public servant is a full-fledged human being
with predictable self-interested behaviour” (Sabhlok,BFN)
 His goal: to expand his empire (importance)

Obstacles/ inefficiency/ symbols, not real work
Solution:
 Meet participation constraint


High salary to attract good people
Incentive compatible wage
Performance based reward/pay
 Tenure totally abolished at executive levels
 Stern punishment for underperformance/ corruption

Consider Chanakya’s wisdom re:
incentive compatible wage


"the highest salary paid in cash, excluding perquisites,
was 48,000 panas a year and the lowest 60 panas a
year. The ratio of the highest salary to the lowest,
was eight hundred to one.” (Balbir Sihag)
If lowest salary is Rs.4000 per month, then highest
should be Rs. 32 lakh per month (or Rs.3.8 crores per
year)
Even a top salary of Rs.1 crore will go a long way.
But there must be ability to instantaneously fire.
India’s bureaucracy: The current
situation

Salary is not high enough to:
 A)
attract demonstrated high quality talent
 B) prevent corruption
 Indeed,

there are rewards for corruption
No punishment for non-performance
 Tenure
is particularly insidious
 Articles 310,311
=> Our politicians can’t control bureaucrats
Paying in “patriotism cash equivalent”
is not always a good idea
Market rate for a particular skill
Incentive to
perform and be
honest, else will
lose job – and
money!
Incentive
to be
Sacrifice
arrogant
(doing
“for the
“sacrifice”
nation” for
country) and
unaccountable
Australia pays market rate
+ incentives
India pays 1/3rd market rate
+ nationalism
Minimum conditions must be met
Pasteur: Milk must boil before bacteria die
To kill incentives
for corruption
Participation constraint
AND
Incentive constraint must be met
What about transparency?



Can transparency (by itself) eliminate corruption?
No.
 Easy for corrupt officials to provide “transparent reasons”
for awarding large government contract to bribe-giver
 We can have all the transparency we like, but the corrupt
will find a way
 We must attack INCENTIVES, and must not PREACH
Unless participation and incentive constraints have
been met, other factors don’t have any effect
What about Lokpal?



Can punishment (by itself) eliminate corruption? (eg
Lokpal)
No.

Low possibility of detection: When 95 per cent are corrupt,
chance of getting caught is small, so why worry?

Risk premium on corruption: Lokpal will allow corruption “rates”
to increase on due to increased risk of punishment
Unless participation and incentive constraints have
been met, other factors don’t have any effect
Commonly advocated anti-corruption
solutions can work after basics are met
Transparency CAN work
 Lokpal CAN work

Basic conditions will make 95 per cent people
honest
 After that remaining 5 per cent corruption can
be eradicated by transparency and lokpal

Where will money to increase wages
come from?

First, we must remember: “penny wise pound
foolish”
 If
the top levels can become honest, the rest will follow
 Singapore PM is paid $2 million

Government should stop doing things it should
not be doing in the first place
 That
will give citizens the freedom to produce =>
greater revenues
2) INDIA’S SYSTEM COMPARED
WITH AUSTRALIA’S SYSTEM
Flexible control over bureaucracy

Bureaucracy is controlled by Acts of parliament
 Public
Service Acts of 1902, 1922 and 1999
 In Victoria, recent Public Administration Act 2004

This, being flexible, allows continuous improvement
Agile system. Empowers but demands
total accountability

Secretaries appointed by Prime Minister/Chief Minister


Contractual, with clearly defined KPIs
Secretaries empowered to hire and fire other staff


Hire and fire option with 4 months notice
Secretary appoints Deputy Secretary

who appoints Directors, etc. down the line
Open market recruitment by application for each position
 Remuneration parity with private sector
 Contractual service at all executive levels
 Portability of employment contributions for retirement

Australian government doesn’t dabble
excessively with the economy

Extremely limited role of government in
managing economic activity (in comparison with
India)
 Almost
no administered price, including in the
utilities sector
 Targeted subsidies to the poor
 Freely floating currency
 Very low duties (free trade)
 Almost no subsidies for any sector
=> Starkly different governance!





Superior management (including project management)
skills
Self-actualising organisational culture
Strong performance management system
Diverse background of government employees (most
with private sector experience)
Head of civil service often in mid-30s




Good performers are rapidly promoted
Extensive delegation of responsibility
Free and frank policy advice
Significant use of modern IT
Strong system for accountability

KPIs and performance contracts for Secretaries
 KPIs
flow into performance plans of lower officials
 All executives are fully accountable for contracted
results
 Independent review of Secretaries’ performance
 Performance

bonus contingent on performance
Not uncommon for executives to be demoted or
dismissed for non-performance
Organisational culture





Blue culture on the
"circumplex“
Self-actualising
No one is called "Sir",
only first names.
Everyone equal as a
person
India's culture is very red
in comparison!
(Aggressive/Defensive)
Staff are expected to:









show concern for the needs of others
involve others in decisions affecting them
resolve conflicts constructively
be supportive of others
work to achieve self-set goals
help others to grow and develop
point out flaws (ie not just accept low standards)
be a good listener
give positive rewards to others
Staff are not expected to:








do things for the approval of others
"go along" with others
win against others
accept goals without questioning them
be predictable
never challenge superiors
do what is expected
oppose new ideas
Focus on world-best policy products

Policy officers conduct world-class research
 Short,

crisp, professional briefings for Ministers
No “peons”/clerks
 Officers
organise everything themselves
Rapid turnaround of documents/emails
 Independent Board (with non-departmental

directors) provides high quality corporate
governance
Productivity tools extensively used. And
experts/ academics consulted

All documents dealt with electronically
Key documents auto-scanned at time of receipt
 TRIM to store documents including emails
 Govdex to share confidential documents across Federal and
State governments


Telepresence (Huge TV screens)


No unnecessary travel for meetings
Constant interaction with OECD, other international
jurisdictions and world-best academics

Eg. Centre for Market Design in University of Melbourne
3) PUBLIC ADMINISTRATION
REFORMS FOR INDIA
Political incentive reforms

As discussed: key reforms could include
 State
funding of elections
 High salaries but no perks
 Performance bonus based on
 increased
GDP
 reduced corruption, etc
 Lokpal
to deal primarily with corrupt Ministers
Bureaucratic system reforms

As discussed:
 Eliminate
tenure
 Contractual
 Salaries
appointments (Under Secretary and above)
comparable with private sector
 Performance
pay related to outcome
 Ability to dismiss without notice for non-performance
(with 4 months salary in lieu)
 Reduce
clerical staff and hire policy experts
But this is "not practical”!
Good policy maker must design transition path.
Eg. Following steps
 0: Stop deputations to centre for two years
 Ask an HR company to advertise all Secretary
positions
 Month 3: Prime Minister and Ministers appoint New
Secretaries on 2-year contract based on merit
Secretaries not successful in getting these job sent to cadre
 New Secretaries then advertise Addl and Jt Secretary
positions and hire in next three months
 Month 6: Those not successful return to cadre

Transition contd.
Month 9: Strategic plans
 Month 21: Implementation of strategic plans
completed

 New
Public Administration Act
 Any relevant Constitutional amendment

By end of 2nd year, full transition to be rolled
out in the Centre
 Similar

transition rolled out in the States
Within three years civil service would be fully
restructured and become agile/efficient
4) ECONOMIC POLICY
REFORMS FOR INDIA
Chanakya’s insights, once again



Chanakya does not prohibit
anything
 Alcohol/ prostitution/ most
meats
He regulates it
He promotes trade, particularly
imports
 Open economy is the key to
prosperity
Liberalisation does not
equal deregulation
India: yet another proof that economic
freedom works

Freedom is increasing rapidly in India since 1990s
 Most
E.g.
sectors liberalised
mobile phones
 Some
sectors are free because the government
is basically defunct in those areas
 Overall, we have very low levels of freedom

=> Need to liberalise most sectors
Education
Health
India’s output has responded rapidly to
very limited increase in freedom
Table: Share of world output measured in terms of PPP
Country
1980
1990
2000
2010
2016
China
United States
India
Japan
Germany
Russia
Brazil
United
Kingdom
Australia
2.2
24.7
2.5
8.7
6.7
0.0
3.9
4.3
3.9
24.7
3.2
9.9
6.1
0.0
3.3
4.1
7.1
23.6
3.7
7.6
5.1
2.7
2.9
3.6
13.6
19.7
5.4
5.8
4.0
3.0
2.9
2.9
18.0
17.8
6.6
5.0
3.4
2.9
2.9
2.6
1.3
1.3
1.3
1.2
1.1
Economic reforms needed







Review and reduce unnecessary role of government
Fiscal system reform
Financial sector liberalisation (with prudential
regulation)
Privatisation of utilities and defence production where
possible – with regulatory oversight
Open economy (trade)
Urban/regional planning reforms to allow markets to
signal demand and supply
Infrastructure reforms (PPP etc.)
5) REGULATORY POLICY
REFORMS FOR INDIA
Need for optimal (just right)
regulation





Liberalisation ≠ deregulation
We need regulation to prevent/ punish harmful
effects
But no more than that
When social marginal cost equals social marginal
benefit (SMC=SMB – equalised for ALL policies)
Can be assessed through a cost-benefit analysis
(CBA)
 Many challenges in CBA but without such test we
get truly bad policy
Points to consider

Policy must not be made in response to a
particular incident
 It
must be evidence based (cost-benefit/
statistical analysis)
 E.g. cost of saving a life must be equalised
across all interventions
Regulatory Impact Statement

Gatekeeping role, includes
 Cost
benefit test
 Public consultation (transparency)

Bad policy reduced
The basic idea applies to all projects (eg.
infrastructure/ public private partnerships)
But India doesn’t have gatekeeping processes yet
Victoria’s independent gatekeeping
mechanism
Department prepares RIS
 Independent Commission assesses the RIS
 Minister signs the RIS and publishes for
consultation
 The Treasury department advices Cabinet
(where appropriate)
 Parliamentary Committee scrutinises RIS for
integrity and diligence

10 questions to eliminate bad policy
1: What would happen without any role for
government
2. Identify problem/s with the base case and explain
why these are problems
3. First principles test (should government intervene at
all)
4. What can government do about the problem/s?
5. Freedom test
10 questions to eliminate bad policy
6. Strategic gaming test
7. Government failure test
8. Real experience test
9. Cost benefit test
10. Transition path
(details in Victorian Guide to Regulation/ policy
competition held by Freedom Team of India)
Urgently needed regulatory reforms in
India

Legislate a mandatory requirement for RIS
for any public policy/ significant project
 Mandate


the 10 point process as the basis for RIS
Create independent Commission to assess
adequacy of RISs
Ensure public consultation so the truth emerges
Reducing red tape (costs of regulation)
Measuring regulatory costs
Standard Cost Model (European)
 Regulatory Change Measurement method
(Victorian)
 Reducing red tape provides significant
benefits businesses and the community

6) TRANSITION FROM CURRENT
SYSTEM TO WORLD-BEST
SYSTEM
Strategic plans and transitional
strategy

This is time to our homework
Then

good results will be certain
In this conference we will specify each
step of what a good government
should do in its first six months
 Transitional
path
These goals of good governance are
very easy to achieve



These are PROVEN methods
These are consistent with the views of India’s
greatest economist - Chanakya
Let’s remember that Indians are the same as other
humans
 Same
species. No difference in behaviour.
We need to establish a Chanakya
School of Governance




India has excellent technology, medical and
management schools.
But not one good school of governance
 (Note: Governance goes beyond public
administration)
We need many excellent schools of governance
Suggested: Let the private sector in India establish a
world class Chanakya School of Governance
Federation of reformers recently
created

At the National Reform
Summit in Haridwar recently,
a Sone Ki Chidiya Federation
has been created for
reformers
 Vision
 Agenda

for Change
Let this Conference create
Strategic Plans for reform
REMARKS OF SPECIAL GUEST
Justice Tewatia
Remarks of Special guest: Justice
Tewatia

Former Chief Justice of
Punjab & Haryana and
Calcutta High Courts
CHAIRMAN’S REMARKS
T N Chaturvedi, Chairman IIPA
Chairman’s remarks: T N Chaturvedi
Padma Vibhushan
 Former Comptroller
General of India (1984 1990)
 Governor of Karnataka
(2002 to 2007)
 Governor of Kerala 2004
 Chairman, IIPA

Request to contribute funds


Please contribute to the India Policy Institute which
is significantly out of pocket for running this
conference.
Please also contribute to Freedom Team of India
and Sone Ki Chidiya Federation which are taking all
necessary steps to bring governance (including
policy) reforms to India.
Lunch Break: 1 hour

Questions and Answers after the
break
DAY 1: POST LUNCH SESSION
Plan for post-lunch session
1:30 pm: Initial set of issues, and outline of strategic
plans
2:00 pm: Strategic plan for “How”
 What should be done?
 What should the transition plan look like?
3:15 pm: Tea break
5 pm:
Closure for first day
QUESTIONS/ISSUES ON
INTRODUCTORY SESSION
Issues in your mind at this point
We’ll note on the whiteboard
 We’ll deal with many of these issues later
(today or tomorrow)

STRATEGIC PLANS
Task: Prepare a strategic plan
Imagine you are the Prime Minister’s main
policy adviser.
 Prepare a strategic plan (with transitional
steps) to deliver governance reforms in:

 How:
Public administration reforms
 What: Policy/ regulatory framework reforms
Process that we’ll follow
We’ll sub-divide the question
 We’ll then break out into small groups and
discuss

 What’s
already happening in India?
 How can we modify existing practice to
seamlessly bring about change?
 What are key obstacles and how can we
remove them?

Moderators will report back to the delegates
Task 1: Strategic plans for public
administration
1) Abolition of tenure [Dipinder]
2) Setting market comparable/ performance
based salary [Sureshan]
3) Recruitment through open competition for each
post [KK Verma]
4) Change in organisational culture
[Rajan/Abhijeet]
5) Use of IT and technology [Akshay/Madhu/
Vidyut]
Any other thoughts/issues
Identify any issues/obstacles
 Identify solutions

Request to contribute funds


Please contribute to the India Policy Institute which
is significantly out of pocket for running this
conference.
Please also contribute to Freedom Team of India
and Sone Ki Chidiya Federation which are taking all
necessary steps to bring governance (including
policy) reforms to India.
DAY 2: STRATEGIC PLANS
CONTINUED
Review of Day 1

Theory and introduction

How can a government do its work?
 Public
choice theory/ Arthashastra
 Participation
constraint
 Incentive constraint
 Strategic
plan for effective public
administration
Strategic plan for effective public administration
1) Abolition of tenure
2) Setting market comparable/ performance based
salary
3) Recruitment through open competition for each
post
4) Change in organisational culture
5) Use of IT and technology
>> We did not discuss improved incentives for
politicians, but these are outlined in BFN
Today

What a government should do

School of governance

How can these reforms be implemented?

Concluding session
Timing

9:30 am to 12:30 pm morning session
 Tea
at about 11 am

12:30 pm to 1:30 pm Lunch

1:30 pm to 5 pm evening session
 Tea
at about 3:15 pm
Review of the “What” question

Economic policy framework
 Maximum

freedom subject to accountability
Regulatory policy framework
 Optimal
regulation
 Red tape reduction
4) ECONOMIC POLICY
REFORMS FOR INDIA
Chanakya’s insights, once again



Chanakya does not prohibit
anything
 Alcohol/ prostitution/ most
meats
He regulates it
He promotes trade, particularly
imports
 Open economy is the key to
prosperity
Liberalisation does not
equal deregulation
India: yet another proof that economic
freedom works

Freedom is increasing rapidly in India since 1990s
 Most
E.g.
sectors liberalised
mobile phones
 Some
sectors are free because the government
is basically defunct in those areas
 Overall, we have very low levels of freedom

=> Need to liberalise most sectors
Education
Health
India’s output has responded rapidly to
very limited increase in freedom
Table: Share of world output measured in terms of PPP
Country
1980
1990
2000
2010
2016
China
United States
India
Japan
Germany
Russia
Brazil
United
Kingdom
Australia
2.2
24.7
2.5
8.7
6.7
0.0
3.9
4.3
3.9
24.7
3.2
9.9
6.1
0.0
3.3
4.1
7.1
23.6
3.7
7.6
5.1
2.7
2.9
3.6
13.6
19.7
5.4
5.8
4.0
3.0
2.9
2.9
18.0
17.8
6.6
5.0
3.4
2.9
2.9
2.6
1.3
1.3
1.3
1.2
1.1
Economic reforms needed







Review and reduce unnecessary role of government
Fiscal system reform
Financial sector liberalisation (with prudential
regulation)
Privatisation of utilities and defence production where
possible – with regulatory oversight
Open economy (trade)
Urban/regional planning reforms to allow markets to
signal demand and supply
Infrastructure reforms (PPP etc.)
5) REGULATORY POLICY
REFORMS FOR INDIA
Need for optimal (just right)
regulation





Liberalisation ≠ deregulation
We need regulation to prevent/ punish harmful
effects
But no more than that
When social marginal cost equals social marginal
benefit (SMC=SMB – equalised for ALL policies)
Can be assessed through a cost-benefit analysis
(CBA)
 Many challenges in CBA but without such test we
get truly bad policy
Points to consider

Policy must not be made in response to a
particular incident
 It
must be evidence based (cost-benefit/
statistical analysis)
 E.g. cost of saving a life must be equalised
across all interventions
Regulatory Impact Statement

Gatekeeping role, includes
 Cost
benefit test
 Public consultation (transparency)

Bad policy reduced
The basic idea applies to all projects (eg.
infrastructure/ public private partnerships)
But India doesn’t have gatekeeping processes yet
Victoria’s independent gatekeeping
mechanism
Department prepares RIS
 Independent Commission assesses the RIS
 Minister signs the RIS and publishes for
consultation
 The Treasury department advices Cabinet
(where appropriate)
 Parliamentary Committee scrutinises RIS for
integrity and diligence

10 questions to eliminate bad policy
1: What would happen without any role for
government
2. Identify problem/s with the base case and explain
why these are problems
3. First principles test (should government intervene at
all)
4. What can government do about the problem/s?
5. Freedom test
10 questions to eliminate bad policy
6. Strategic gaming test
7. Government failure test
8. Real experience test
9. Cost benefit test
10. Transition path
(details in Victorian Guide to Regulation/ policy
competition held by Freedom Team of India)
Urgently needed regulatory reforms in
India

Legislate a mandatory requirement for RIS
for any public policy/ significant project
 Mandate


the 10 point process as the basis for RIS
Create independent Commission to assess
adequacy of RISs
Ensure public consultation so the truth emerges
Reducing red tape (costs of regulation)
Measuring regulatory costs
Standard Cost Model (European)
 Regulatory Change Measurement method
(Victorian)
 Reducing red tape provides significant
benefits businesses and the community

Task 2: Strategic plans for policy
framework reform
1) Legislative framework for RIS (including
sunsetting requirement) [Dipinder]
2) Detailed guidance on RIS/ policy framework
[Sureshan]
3) Independent commission to assess RISs [KK
Verma]
4) Review of key legislation and policies using
policy framework within 1 year [Rajan/Abhijeet]
5) Red tape reduction program technology
[Akshay/Madhu/ Vidyut]
ANY OTHER THOUGHTS ON
FRAMEWORK REFORMS?
Any other thoughts/issues?
Issues/obstacles
 Potential solutions

SECTORAL POLICY
ANALYSIS
5 policy areas for analysis based on
governance/policy framework
School and higher education [Dipinder]
 Economic policy (trade/commerce/
production) [Sureshan/ Madhu]
 Local government [KK Verma]
 Utilities (energy, water) [Rajan/Abhijeet]
 Transport (roads and public transport)
[Akshay/Vidyut]

Economic Policy paper by Dr. (Ms)
Madhura Mitu Sengupta


Associate Professor, Department of Politics &
Public Administration, Ryerson University,
Toronto, Canada
Paper accepted: “Economic Policy Reform and
Governance - The Challenge of
Decentralization”
 Flight
delays due to bad weather in N. America
 Likely to reach, but late
SCHOOL OF GOVERNANCE
School of governance


We have IITs/IIMs but no internationally reputed
school of governance
Governance is a science that includes:
 Public
administration and management
 Economic analysis (particularly public choice, agency
theory, and mechanism design)
 Policy analysis (cost-benefit analysis)
 Regulatory analysis (measurement of regulatory costs)

We need a number of world-class schools of
governance
The task: Setting up a world best
school of governance

How can a financially sustainable (ie. not dependent
on subsidies from government) be established?

Who would like to pay fees and attend courses?

What courses should it teach?
NEXT STEPS OF THE JOURNEY
Who will implement these reforms?



Governments/ political parties?
Universities/ civil society?
Three governance reform organisations:
 India Policy Institute (1999), Hyderabad
 Freedom Team of India (2009), Indore
 Sone Ki Chidiya Federation (April 2103), Delhi
>> Influence
next government
Concluding comments
Thanks to IIPA
 Thanks to TN Chaturvedi, Gurcharan Das,
Justice Tewatia and IIPA faculty and staff
 Thanks to participants who contributed funds
for this Conference
 Thanks to other participants for attending and
contributing their ideas

Let this Conference mark the beginning
of a journey, not its end
Please join:
Freedom Team of India and/or
Sone Ki Chidiya Federation
if you want these reforms to be
implemented

India Policy Institute is still out of pocket for this
Conference. So please contribute.
VOTE OF THANKS
Dipinder Sekhon
Together let’s
change India